The Pros and Cons of Switching Your Mortgage
Everyone knows you should shop around to find the best deal from your energy provider, so why wouldn’t you do it for your mortgage?
Almost everyone who owns a property has one and yet, statistics recently released by Dynamo Mortgages state that homeowners are collectively wasting £53.3m a year by paying the standard variable rate on their mortgage. This equates to an average of £371 per month or £61.83 per week per mortgage. That’s a lot of wasted money.
Let’s first look at some of the reasons why you need to review your mortgage on a regular basis
- To save money. After your special rate mortgage deal expires, you may default to your lender’s Standard Variable Rate (SVR), which may not be as competitive as you would think. Depending on your circumstance and your future mortgage requirements, you may be able to save money by switching to another special rate offered by your current mortgage lender or, to a completely new lender. By staying with your current lenders SVR, you may be overpaying and potentially missing the opportunity to cut down on your monthly payments.
- To reduce the term of your mortgage. If you are happy to continue paying the same monthly mortgage payment, you could, in effect, officially overpay and reduce the term of your mortgage.
- Borrow additional money. If your property has increased in value then you could remortgage to release the equity in your home.
- Peace of mind. If you’re paying the standard variable rate, this rate can change and your mortgage payments could also change. If your previous deal has expired, keeping with your lenders SVR can be uncertain. You may want to know what your mortgage payments will be each month in the future so you can budget accordingly. So securing another special rate could do this for you.
What about the reasons not to remortgage?
Let’s be honest, there could be many reasons why it’s best to stay paying the standard variable rate. Here are some of the most common:
- You’re still on a competitive rate. Sometimes the penalties you would have to pay for ending your mortgage contact will outweigh any saving you would make on switching your mortgage to a new lender or rate. If you’re only halfway through your current mortgage deal, then you’ll likely have to pay fees to switch to a different rate or lender. Although sometimes it can still be worth switching, and a mortgage broker will be able to give you the advice you need.
- Your situation financially has changed (such as poor credit score). Now whilst this can also be a reason to remortgage, if since taking out the mortgage, your credit score has dropped considerably (for example due to missed payments) then you may find that keeping with your current mortgage is actually better until you have straightened out your credit profile.
- You have recently gone self-employed. Most lenders will require a minimum of 1 year’s accounts to ensure your income is sufficient to meet your mortgage commitments. Without this, you may find it hard to find a competitive deal.
A recent example of one of our clients saving through a remortgage
Our client’s special rate had ended and they were paying their lender’s standard variable rate at 4.99% with mortgage payments of £1,082 per month. After a mortgage review, we secured a new rate of 1.88% on a two year fixed rate with new mortgage payments of £875 per month. A total cost saving of over £4,300 (including all costs and fees over two years based on a repayment mortgage of £160,000 for 18 years).
A good idea or not?
Many mortgage brokers are more than happy to carry out a free, no obligation consultation to understand your situation and assess whether a better deal can be achieved that will save you money. In our eyes, this is a no brainer as even if your mortgage broker can’t find a better deal, you can be confident that you’re not wasting money. It’s important that you consider all the costs involved before committing to a remortgage or switching to a new rate, but if the savings outweigh the fees then it could be worth the effort.
Are you looking to review your mortgage? Why not give us a call for a free, no obligation consultation. We are whole-of-market independent mortgage brokers and our team have over 30 years of experience in helping our clients get a competitive deal on their mortgage.