Mortgage Guide

Switching mortgages - a guide

Updated: Friday 17 February, 2012

By Martin Fagan

Switching mortgages could save you hundreds - if not thousands - of pounds. This guide answers some common questions about switching.

Mortgage lenders are like any other profit-making industry - although they want to retain existing customers they also need to attract new ones. For this reason, a homeowner with a good credit rating can often find a better deal when switching mortgages.

Switching mortgages doesn’t necessarily mean going to a different company - it could just mean taking up a different type of mortgage with the same lender.

We take you through some of the things you need to think about before switching your mortgage.

• Will switching mortgages mean starting again with a new 25-year mortgage?
• I can afford my current mortgage but I’m curious about a better deal - is it worth switching?
• Should I switch to a new mortgage lender or find a new product with my current one?
• In what ways can I save money by switching mortgages?
• How much could I save by switching mortgages?
• What should I do next?

Will switching mortgages mean starting again with a new 25-year mortgage?

No - you can keep your original mortgage term. For instance, if you are four years into a 25-year mortgage, you can take out a 21-year mortgage with a new lender.

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I can afford my current mortgage but I’m curious about a better deal – is it worth switching?

The best reasons for switching mortgages are:

• You’ve been tied into a mortgage for years but your fixed term has ended and there are far better deals around now
• You want a more flexible mortgage that allows you to pay extra or take repayment breaks
• You took out a fixed-rate mortgage and interest rates have now fallen considerably
• You’re unable to meet your monthly repayments
• You’re worried your endowment policy won’t cover the capital you’ve borrowed
• You think interest rates are going to rise and you want a fixed or capped rate.

Switching mortgages can save you a lot of money but there are potential costs of switching that you need to bear in mind, such as admin charges, redemption fees, a deeds fee, discharge fee or sealing fee, and other costs.

If you need a solicitor to handle the switch, you will also incur legal fees or, if you use a mortgage broker, broker fees. You need to weigh up all these costs against the benefits of a new mortgage deal to decide whether by switching mortgages you would save money overall.

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Should I switch to a new mortgage lender or find a new product with my current one?

Switching to a new mortgage lender may involve lots of administration and sometimes a lengthy application process. If the savings you will make are negligible, it’s often better to switch to a better deal with your current lender.

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In what ways can I save money by switching mortgages?

You can save money by doing any of the following:

• Switch to a different scheme with your existing lender.
• Switch from an endowment (interest-only) to repayment mortgage. This is a good idea if you don’t think your endowment will fully pay off your mortgage when the endowment matures at the end of its term. If you believe you were mis-sold the endowment mortgage, you can make a complaint and you may be entitled to compensation.
• Transfer your mortgage to a different lender. You may have to pay a redemption fee to your current lender - especially if you are only a few years into your mortgage - but it could be worth it in the long run.
• Change your mortgage term. You don’t have to borrow for 25 years - you might want to ask your lender whether you can cut the term (saving money in interest) or extend the term (cutting your monthly repayments).
• Switch from a fixed-rate to a discounted variable-rate mortgage. This is more risky as interest rates can go up as well as down.

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How much could I save by switching mortgages?

It’s hard to say what your savings would be, but here’s an example of how a lower interest rate can affect your finances:

"Mrs. Smith" has a £100,000 standard variable rate mortgage with a term of 20 years left. She pays 6.5% interest. If she switched to a new mortgage at 4.5%, she could save £116 a month. That’s a saving of £1,392 a year or £27,840 over the remaining 20 years of the mortgage term.

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What should I do next?

If you’ve decided it’s worth switching mortgages, your next steps should be:

• Take a look at the market to establish what’s a good deal and what’s not.
• Talk to your current lender about switching to a new product.
• If your lender doesn’t offer you anything worthwhile, take time to shop around and compare mortgages.
• Seek advice from a mortgage broker or financial adviser before making a decision.
• Read our guide, Switching mortgages: Top ten tips

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THINK CAREFULLY BEFORE SECURING ANY DEBTS AGAINST YOUR HOME.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.