Is there a best time to switch products with your existing lender?
When you’re looking for a new mortgage interest rate deal you don’t need to go through a full remortgaging application. Instead it might be better to ‘transfer’ your product to a different one with your existing lender.
Here’s what you need to know.
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What is a mortgage rate switch?
A mortgage rate switch is when you swap your current mortgage interest rate deal (also known as a mortgage product) for a new one offered by your lender.
Mortgage rate switches can happen in a couple of scenarios. You’re either coming to the end of your current deal so need to change to a new one. Or your lender’s released a new rate and you want to change to that one instead.
Most lenders have a range of different mortgage rate deals to choose from. But with varying interest rates and lengths of time you’ll be tied in for, it’s important to choose the one that’s best for your budget and your circumstances.
What’s the difference between a mortgage rate switch and a remortgage?
A mortgage rate switch means you’re staying with your existing mortgage lender and just changing the interest rate deal on your loan. There’s no additional money being borrowed, nothing else is changing, it’s just a deal change. These tend to have less fees than a remortgage and the process is faster.
A remortgage is when you either borrow more money when you change mortgage deals with your existing lender or you choose to move your mortgage to a new lender altogether.
Doing this means you’d need to go through the application process again, which can be a right pain to say the least. However you would have more choice and potentially be able to find a cheaper deal.
Sadly, if you’re moving home neither option will work and you’ll need a brand new mortgage, unless your existing mortgage deal can be ‘ported’ (transferred to the mortgage on your new property).
When’s the best time for a rate switch on your mortgage?
At the very minimum, you should try to find a new deal before your current one ends to avoid going onto the dreaded standard variable rate (more on that later).
Most lenders let you switch to a different rate in the last three months of your existing deal, with many now allowing you to change in the last six months. If interest rates suddenly take a tumble and you want to lock in a lower interest rate, this flexibility is great.
But if rates are high or particularly volatile in the last six months of your deal, you’ll need to weigh up whether to lock in a deal now or holdfire to see what happens with the base rate. Remember that even if interest rates seem high, they can always go higher (as well as lower) so make sure you’re comfortable with that risk if you choose to wait it out for a bit longer.
I usually start looking at what mortgage rates are on the market when I have six months left on my current deal. When you should switch is down to you, there’s no one-size-fits-all answer I’m afraid.
Give yourself time to weigh up all your options and think about your attitude to risk. Would you rather lock in a rate now and have that stability (even if rates go down in a couple of months)? Or are you comfortable waiting a bit longer to see if things change, even if that means rates go up and you then miss out on a better deal?
The good news is that even if you secure a new mortgage product well in advance, you usually have the flexibility to change your mind and pick a new one up to just a few days before the new product starts. Just watch out for any fees that could be due if you do this – ask your lender before signing up.
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Can you switch mortgage rates before your current deal ends?
You can usually switch fee-free in the last 3-6 months of your mortgage deal depending on your lender’s terms and conditions.
Aside from that, you can change your mortgage rate at any time – providing you’re happy to pay the fees that go with it. Most lenders charge an early exit fee if you choose to change your rate before the last three to six months, so check how much that will be before you make a decision.
Should you stay with your current lender or switch to a new one?
Who you choose to take a mortgage with is a big decision. You could be locked in to a deal with them for five or even 10 years. I can see why many people choose to just stay with their current lender when it’s time to choose a new deal rather than look for a new lender. The thought of applying for a brand-new mortgage and going through all that paperwork again can make your toes curl.
But the truth is, you could miss out on a better deal if you just stay where you are. Shop around, research what products are available and look at reviews left by other people. Make sure lenders are walking their talk when it comes to service as well as their product range.
If that all feels like a lot, I totally get it. I geek out on mortgages, but even I find looking for a new mortgage deal overwhelming. I choose to work with a mortgage broker because it just makes my life easier. I use a whole of market, fee-free broker (they can search across all lenders and they don’t charge me anything to find a deal).
Sometimes it works out that my current lender is still my best option and other times, moving to a new lender is better. Either way, I find working with a broker takes a lot off my plate and gives me the peace of mind that I know all the best options for my circumstances.
What fees are involved in mortgage rate switches?
If you’re going to switch in the fee-free period towards the end of your product, you won’t usually pay anything to leave your current deal.
You may have to pay an arrangement fee for your new mortgage deal but most lenders provide some flexibility in how you pay. You can opt to either pay the fee up-front or add it to your mortgage loan. Just bear in mind that if you add it to the mortgage, your balance will increase which means that over time, you’ll pay more interest. But if you do pay them upfront it’s unlikely to be refunded if you decide to switch if a better deal appears.
What happens if you don’t switch mortgage rates before your current deal ends?
If you don’t pick a new mortgage deal before the current one ends, you’ll most likely be put onto the lender’s standard variable rate (SVR). Although the SVR doesn’t have any fees to switch or pay off your mortgage, that’s probably the best (and only) benefit.
The SVR interest rate not only fluctuates with the Bank of England base rate, but in most cases it’s substantially higher than other mortgage deals meaning your monthly payments will be higher.