Remortgaging Explained: Switching Your Mortgage Deal

Remortgage or product transfer?

When a deal is ending, there are two main routes:

• Product transfer. A new deal from your current lender. It is often quicker, may not need a full affordability assessment, and usually involves less paperwork.
• Remortgage. A new mortgage with a different lender. The new lender pays off the old one. It involves a full application, a valuation and legal work, but opens up the whole market.

Neither is automatically cheaper. The useful comparison is the total cost of each option over the deal period.

When do people remortgage?

• When a fixed or discounted deal ends. Without a new deal, the mortgage usually moves onto the lender's standard variable rate (SVR), which is often higher. When my fixed rate ends covers that moment in detail.
• When rates change and a better deal becomes available.
• To borrow more, for example for home improvements. This increases the debt secured on the home.

You can switch at almost any time, but leaving a deal early usually triggers an early repayment charge.

How much could it save?

MoneyHelper gives this example for a £200,000 balance over 20 years, with the rate fixed throughout:

| | Current deal | Option 1 | Option 2 | |---|---|---|---| | Interest rate | 5% | 4.5% | 4.4% | | Fees added to the mortgage | £0 | £0 | £2,000 | | Monthly payment | £1,320 | £1,256 | £1,267 | | Total interest | £116,876 | £103,572 | £102,102 |

Option 2 has the lower rate, but its £2,000 fee makes the monthly payment higher than option 1. Fees added to the loan are also charged interest.

Costs to check before switching

• Early repayment charges on the current deal, if it has not ended yet.
• Product or arrangement fees on the new deal, and whether they are added to the balance.
• Legal, valuation and administration costs. Some lenders pay these or offer cashback instead.

How your loan to value affects the options

Loan to value (LTV) is the balance divided by the property's value. A £250,000 balance on a £300,000 home is an LTV of about 83%. As you repay, or if the property rises in value, the LTV falls and lower rate bands may open up. If values fall, the LTV rises, and owing more than the home is worth makes remortgaging harder. See mortgages explained for how rate bands work.

What a new lender checks

A remortgage is assessed much like a new mortgage: income, outgoings, credit history and whether the payments would still be affordable if rates rose or a household income was lost. Missed payments in the last 12 months can make remortgaging very difficult.

A good time to review protection too

A new deal often changes the balance, the monthly payment and the end date. If life cover or income protection was arranged around the old mortgage, it is worth checking whether it still matches.

Remortgage checklist

• When does the current deal end, and what would the SVR be?
• What would your current lender offer as a product transfer?
• What is the total cost of each option, including fees?
• Are there early repayment charges if you switch now?
• What is your current loan to value?
• Do you plan to move during the new deal?