Everything you need to know about switching mortgages

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Taking out a mortgage is often associated with first-time buyers. But it’s something all homeowners should do when their current mortgage deal comes to an end. It can help ensure your mortgage continues to suit your plans, and it could even save you thousands of pounds.

Failing to switch mortgage could cost you over £4,000

When a mortgage deal ends, you’re usually moved on to your lender’s standard variable rate (SVR), which usually has higher interest rates. It could mean you end up paying more interest than you need to.

It’s thought at least one in four mortgage holders is paying more interest than they need to because they haven’t taken out a new mortgage deal, according to research. The average SVR offered by lenders is 3.53%, but there are deals available that are far below this. The research estimates that some homeowners are paying an additional £4,080 each year by not searching for a new mortgage deal.

Many people are also confused about what remortgaging means, the survey found. Some 17% thought they would have to take on more debt, while 8% confused the term with taking out a second mortgage. One in ten believed that the higher monthly repayments of an SVR would mean they’d be mortgage-free sooner. In fact, this additional cost is going towards paying off interest, not reducing the loan.

If you’re a mortgage holder, here are five things you need to know about remortgaging that could save you money.

1. You can choose the amount borrowed and the term

Much like when you took out an initial mortgage, you can choose how much you borrow and the term you want to pay it over.

This means you can borrow more against your home if you choose to. However, you don’t have to. This option would reduce the amount of equity in your home and could increase either repayments or the term of your mortgage. Most mortgage holders will simply remortgage for the outstanding amount, but you could also reduce it if you can make a lump sum payment.

Remortgaging also provides you with a chance to change when you will pay off the mortgage. Extending the mortgage term means repayments are likely to fall but it will take you longer to be mortgage-free. You can also opt to shorten the term, to pay off the debt quicker.

Of course, it’s still important to keep in mind how likely a mortgage provider will be to approve your application. If you want to borrow more, for example, you will need to prove you have the income to keep up with repayments. As a general rule, providers will want the term of your mortgage to finish before retirement age.

2. You review your credit report

Your credit report and score play a role in the mortgage deals that are open to you. The more financially stable you are, the more likely you are to secure a competitive mortgage. A credit report is one way potential lenders will assess how risky you are, which will influence the response to your application and the interest rate offered.

It’s worth taking some time to review your credit report before applying for a new mortgage, it could save you money. Keep an eye out for mistakes and review any negative factors on your report. In some cases, there are easy steps you can take to provide your credit score with a boost, such as registering on the electoral roll. Keep in mind, it can take some time for changes to show up on a credit report, so it’s best to take this step several months before you plan to remortgage.

3. Getting your home valued could save you even more

During the time that you’ve been paying your mortgage, it’s likely the value of your home has increased. Getting it valued before remortgaging could help you save even more. This is because the amount of equity you own will be higher, which helps to present you as less of a risk to lenders.

When lending, providers use loan-to-value (LTV) ratios to set out interest rates, the more equity you own, the lower the interest will usually be. So, if rising property values push you into a lower LTV band, you could see monthly repayments fall.

4. You shouldn’t just compare interest rates

Interest rates are often what we focus on when taking out a mortgage but think about how your home fits into plans too. If, for example, you hope to move soon, check if you can port a mortgage to a new property. Likewise, if you want to make overpayments to pay off your mortgage sooner, check what fees you may face before signing a contract.

5. You should search the market

Your current provider isn’t necessarily the best option for you. Take some time to review what your options are and search the market.

There are numerous lenders available to choose from, including specialist lenders and those without a high street presence. It can be difficult to compare criteria and know which is the right option for you. This is where a mortgage broker can lend support. They’ll help you identify which lenders are likely to accept your application and be able to make recommendations with your plans in mind, as well as offering support throughout the application process.

You don’t have to wait for your current mortgage deal to end before you search for a new deal. Most lenders will allow you to lock in a deal several months in advance, providing you with stability. Around six months before your mortgage deal comes to an end is a good time to start looking at alternatives.

Please get in touch with us if you’re on an SVR or your mortgage is coming to an end to discuss what alternatives are available for you.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

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