When is it Good to Switch Mortgages?
Switching your mortgage can be a good move in numerous different circumstances, helping you to get a cheaper deal on your monthly repayments. However, you need to find the right balance and strike at the right time to get the best remortgage deal and savings, otherwise it could worsen your position.
Through this piece, we will be exploring exactly what switching your mortgage means, as well as when you should and should not consider this financial move.
Why should you remortgage?
Switching your mortgage, or remortgaging, is a great way to help you save money on your home mortgage repayments. Borrowers can switch their mortgage to plans with lower interest rates, and avoid the standard variable rates (SVRs) that many lenders will change when your introductory rate ends after 2 or 3 years.
When first applying for a mortgage, many lenders will offer an attractive fixed rate or tracker mortgage deal for the first few years of the loan. These types of loan plans will often come with much lower interest rates than the SVRs, helping borrowers to save money on their mortgage.
However, after these deals are up, lenders will then usually transfer the borrowers onto an SVR, which comes with significantly higher interest rates than the borrower’s previous deal. By switching mortgages whilst a fixed rate or tracker mortgage deal is coming to its end, borrowers can avoid lenders doing this, and continue to save money on their home mortgages.
Whilst it is a good time to switch mortgage deals, this is not the only good time; with many other scenarios also providing the perfect environment for borrowers to switch. In is worth noting that saving money on your mortgage repayments is not the only reason that borrowers want to remortgage. The different motives for remortgaging your home will be explored later on in this piece.
When should I remortgage?
Apart from nearing the end of your current deal, there are many other situations that can be a great time to remortgage. Below is a list of just some of these situations:
Improve flexibility on the mortgage: there are some home loans that will allow borrowers to take breaks on their payments, otherwise known as ‘payment holidays’. This could be very useful if you need to catch up on your debts or have some large expenses coming up like a wedding, school fees or large holiday.
Value on property has increased: if the value on your property has significantly increased since first taking out the mortgage, you could find yourself in a lower LTV band. Those in lower LTV bands will have more mortgages with lower rates available to them. Therefore, by switching your mortgage when in this situation, you could save a significant amount of money on your mortgage.
Wanting to increase the loan amount: some current lenders do not allow borrowers to take out more money on their mortgage. Switching to a new home loan in this scenario can enable you to borrow more money than your current provider would have allowed. However, it is worth noting that this increased amount will have to be justified. Providers are more likely to lend you money for an extension on the house or a new car than to fund a high risk business venture.
See also our guide on should I remortgage?
When should I not remortgage?
Despite the advantages to remortgage your home, there are also many scenarios in which switching mortgages can have a negative impact on your finances. Some of the main situations to avoid remortgaging are as follows:
Large early repayment charges: if the cost of release from a current loan is considerably high, attempting to remortgage can have a severe impact on your finances. If you are adamant on switching providers whilst in this situation, it may be worth asking for your provider to let you transfer to another mortgage they offer in an attempt to reduce this early repayment charge. However, aside from this it is not recommended for you to try switching.
Little left to pay on mortgage: once you have paid of the majority of your mortgage and your loan has decreased to a significantly small amount, remortgaging may not be worth your time. There are even some home loan providers that will not take anything under a certain amount. You are also much less likely to reduce the cost of your mortgage so late in the day, and will therefore probably not end up saving that much on the overall cost of your home loan.
Value on property has decreased: if the value of your property has decreased, you will be experiencing something known as evaporating equity. The only thing to do in this circumstance is to stay on course making your monthly repayments. It is not advised to attempt switching mortgages during this period.
Have plans on moving house soon: if you plan on moving house within the next year, you will likely need to get a new mortgage anyway. So there is no need to go through the administration and costs of changing to a new mortgage deal, when it fact you are only months away from getting a new deal anyway. Whilst paying the standard variable rate will be a little higher, it will only be for a few months and then you will likely get a nice low interest introductory rate with your new mortgage.
For more information about remortgaging, see our FAQs page here.