Saving money is important for everyone, regardless of their financial situation. This is particularly crucial in today's climate, where optimizing your earnings is essential. One area where significant savings can be made is through mortgage repayments.
Since a mortgage is typically the largest loan most individuals take, the interest rate attached to it is vital. By reducing your monthly mortgage payments, you can save a substantial amount over time. Switching mortgage providers, also known as remortgaging, often results in a more competitive interest rate and lower monthly expenses. However, it's not always necessary to switch lenders; negotiating a new deal with your current provider, known as a product transfer, can also yield better terms. The choice depends on your specific circumstances.
It's important to recognize the complexity of assessing your financial position and determining the best course of action. It requires time, attention, and careful consideration. Additionally, if you decide to change lenders, the process can be overwhelming. To navigate these complexities and gain peace of mind, it's highly recommended to seek the services of an expert mortgage broker who can provide integral guidance.
Here at The Mortgage Genie, we have helped many of our UK clients to get the ideal mortgage switch solution for them. If you’re interested in joining those among our success stories, then be sure to call up 01915809890 today. Though, in spite of what our assistance can do for you, it remains salient that you fully inform yourself on what it is exactly to change mortgages. So that you can do just this, we’ve put together this guide which goes over all the intricacies while answering the fundamental questions. We’ll cover
Why would you change mortgage provider?
The primary reason people switch mortgage providers - or remortgage - is, as we mentioned, to save on money by securing a more competitive mortgage deal. The logic is simple, if a mortgage product contains a more favourable interest rate, then this works to reduce the cost of the monthly repayments you’re required to meet every month.
Beyond this, however, the underlying reasons that one remortgages for are purely contextual. Specifically, you might change deals if:
1.Your existing fixed-term deal is about to end
It’s a given that mortgages are expansive deals in regards to time, but they are not limitless. Every mortgage comes to an end at some point, whether your entire term spans 2 or 40 years. Significantly, when your term does come to an end, you’ll be placed on your lender’s standard variable rate, as opposed to the usual fixed rate you might have initially agreed upon.
The crux of SVRs is that they generally comprise relatively high interest rates. This means that when your introductory deal ends, you’ll begin to pay more than you had done towards it previously. As such, if you change mortgage providers at this stage, then you can negate this inevitable increase in cost. This is considered to be the most efficient point at which to remortgage.
2.You qualify for a more competitive mortgage deal
When speaking of how long mortgages can last up to, it consequently raises the topic of just how much a person’s life can change during this specific period. Namely, it’s possible for your vital asset, as represented by your property, to experience a tremendous increase in value i.e., how much it’s worth. And additionally, the size of the home’s portion which you own outright may have increased simultaneously.
Both of the above factors have an individual effect upon the loan-to-value (LTV) ratio of your mortgage. If the LTV ratio of your mortgage has lowered from when you first started out as a result of the aforementioned two factors, then you will now be entitled to a more competitive mortgage deal. This is because lower LTV borrowing is considered by lenders to equate to lower risk, causing them to offer relatively favourable rates of interest to those who want such a loan. If this applies to you then, in essence, you can directly decrease your monthly repayments by remortgaging.
3.The Bank of England base rate has risen
For those who are on a tracker-rate mortgage, your monthly repayments are liable to fluctuate. The reason for this is because, in principle, tracker-rate mortgages have their interest rates determined by the Bank of England (BoE) base rate; the former literally ‘tracks’ the latter.
This mortgage type is advantageous when the BoE base rate falls but, naturally, disadvantageous when it rises since the size of your monthly repayments will increase due to the heightened rate of interest. If this has happened, then it could be an indication that you should switch mortgages before losing out.
4.You want to overpay on your mortgage
Overpaying on your mortgage is a method of paying interest on a smaller amount of debt while also implying that your LTV ratio lowers quicker, in turn, affording you with considerable savings and a better position in which to negotiate more lucrative terms.
Unfortunately, however, a lot of deals do not permit overpayments and will penalise you for them. In this situation, it’s worth considering switching mortgage deals to one which will give you a relatively flexible deal so that overpaying is an option.
5.You want to release equity
If you’ve been making mortgage repayments for some time, then it’s likely that you’ve built up a certain amount of equity. Equity is the portion of your property that you own outright. You can extract this value by changing mortgage providers.
This is commonly referred to as a remortgage to release equity and can be felicitous if you’re anticipating a large purchase in the future. Granted, the process has the potential to increase the cost of your monthly repayments, but this aspect can be mitigated if you extend your mortgage loan’s term.
When shouldn’t you switch mortgages?
It becomes evident when explaining the previous points that timing is crucial when changing over to a different lender. Followingly, just as there is a right time to remortgage, there is also a wrong time. And so, you shouldn’t switch mortgages when:
1.Your property’s value has decreased
As discussed, if your property’s value has increased, subsequently meaning that the LTV ratio of your mortgage is now lower than it was initially, then this denotes apt timing for changing your mortgage provider. On the other hand, however, the contrary also applies.
That is, if you now owe more on your property than you did at first, as represented by a higher LTV ratio, then you’ll probably be worse off switching because lenders will offer you less competitive deals as a consequence.
2.You need to pay an early repayment charge
Changing lenders isn’t always a straightforward process which guarantees you savings. This is typically the case when an individual is on a fixed-term contract that hasn’t ended yet. Namely, if you choose to switch your mortgage before the period in which your entire mortgage term closes, then a lender may demand you pay an early repayment charge (ERC).
ERCs consist of a fee that is measured against what you still owe on your current mortgage and can be quite expensive, thereby reducing the worth of remortgaging to save money, sometimes even leaving you worse off.
3.Your financial circumstances have changed
It’s understandable to be unaware of the fact that, when you switch mortgage providers, lenders will impose the same inspections of your personal and financial profile that they had done before initially offering you a product.
These inspections determine your eligibility as well as the terms you are entitled to. As such, if your financial circumstances have changed adversely recently, then you might be offered a worse mortgage loan than what you are currently repaying. For instance, if you’ve recently lost your job or have taken on a new job with a lower wage, then it’s possible that you’re now ineligible for a better rate of interest.
Can I get a mortgage switch?
By the same token of the previous point concerning your financial circumstances, there is the chance of your being ineligible for a worthy remortgage, or ineligible to change mortgage providers altogether.
Previous mortgage approval doesn't necessarily guarantee approval for a remortgage. For example, running into credit issues during the mortgage term can cause someone to be labeled as a ‘high-risk’ remortgage candidate, affecting the available deals. To assess suitability, lenders conduct affordability and credit checks. An affordability check examines income and expenses to ensure repayment capability, including the extra fees and charges. The credit check assesses financial stability, considering credit score, CCJs, IVAs, adverse credit, bankruptcy, and payday loan defaults. These factors impact eligibility and may result in lenders rejecting you, although events over 6 years ago may have reduced impact. All lenders have different criteria, but there is a suitable lender out there for everyone, regardless of financial circumstances.
It should be noted that hard credit checks leave a mark on your report. So, If you want to get a notion of your current financial eligibility before you apply, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Making use of it will help you to see potential mistakes and fraudulent activity so that you can deal with any problems posthaste. The trial and subscription can be cancelled at any time
How long does it take to switch mortgage provider?
Changing over to another lender can take up to eight weeks, and sometimes even longer. Reason being, it'll take time for you to set up a new account, and time for them to run their usual eligibility checks. Likewise, you may have to pay a solicitor to arrange conveyancing for the property.
Albeit, if you were to stay with the same mortgage provider, you can remortgage in a matter of days, given that they'll already have access to all the necessary documentation. But, this comes with the downside of limiting your options.
What should I do before changing mortgage providers?
Given that the quality of a mortgage switch is governed by a variety of factors, it’s suggested that you make adequate preparations which not only to warrant your eligibility, but entitle you to more competitive deals too.
These preparations include improving your overall credit score by spending your finances shrewdly and keeping up with ongoing loan payments, organising paperwork such as 3 months worth of payslips so that the process is as efficient as possible when it begins, getting a fresh valuation on your property, and thereafter working out your existing LTV ratio so that you know where you stand before submitting a remortgage application.
How to change mortgage lenders
Changing mortgage providers is a matter that is entirely down to one’s personal situation and financial circumstances. In a lot of cases, opting for another mortgage deal while remaining with your current lender can turn out to be just as effective. Moreover, product transfers can be easier and cheaper to arrange so it’s essential that you thoroughly evaluate all of your options before making a decision.
Securing a mortgage switch, whether you’re changing your lender completely or just getting another deal, is very much a process that has to be treated with care if the end result is your securing the most competitive deal. It can be overwhelming to come to a satisfactory conclusion by yourself. After all, this post is a testament to the scale of the overall procedure. And so, if you’re currently considering changing mortgages, then we urge you to employ the help of an expert mortgage broker so that you’re in safe hands.
We at The Mortgage Genie have an in-depth understanding on how to get a mortgage and are dedicated to helping people secure loans of all types. We hope that this piece has worked to comprehensively inform you on everything there is to know about switching mortgage providers and has answered all your burning questions.
Every day we aid a growing number of people by finding a mortgage deal which is specifically tailored to their financial circumstances and personal requirements, all while guiding them through each step of the journey. If you’re in need of a team of expert mortgage brokers then be sure to give us a call today at 01915809890 and we’ll get started on arranging your ideal remortgage solution! And why not see how much you could borrow up to today by using our mortgage calculator?