Mortgage Articles


Summary
Switching your mortgage can be daunting but do not assume that you have to stay with you current lender even if you are only part way through the agreed term. You can switch for a better deal but you will incur costs and below we outline exactly what is involved when you switch.


What Costs Are Involved When You Switch Your Mortgage

 

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Although the government would like us to remain loyal to our mortgage lenders for the usual 25 year term, not many of us do as our business can quite easily be coaxed elsewhere for a better deal.

Latterly the mortgage market has become extremely competitive and even in these difficult times there are still into the thousands of deals available and the variation between deals is immense.

If you switch you change from one mortgage to another nut you don't necessarily change lenders. Your current may well offer you a better deal if you approach them as they are well aware that you can get a better deal from another provider if they do not oblige.

Why Would You Switch?

You might switch or re-mortgage for four reasons:

  • You want to release the equity in your property
  • You may want a more flexible mortgage, for example, to alter how you make your repayments
  • You may be on a variable rate and want to change to a capped or fixed rate or a lower rate
  • Your current mortgage has expired and you do not want to continue with the same standard variable rate because you know you will probably be able to get a better deal from elsewhere
What Does It Cost To Switch?

When you are considering switching you must be aware that it will cost you to do so, so be sure to consider factor.

Current Lender Charges

Ask your current lender if you are not at the end of your original arrangement what they will charge you to get out of it – usually they will charge early repayment charges which can be steep.

They can be calculated in any of the following ways:

  • A set amount of months' interest
  • A percentage of the repayment made so far
  • A percentage of how much has already been paid
  • A percentage of the initial mortgage loan value

With a monthly mortgage interest payment of 500 pounds, your lender may charge a standard penalty fee of 3 months interest meaning it will cost you 1,500 pounds to switch.

To compensate for that you would have to save at least 125 pounds per month to accommodate that fee over 12 months. Over 5 years you would need to make a saving of 25 pounds per month for it to stack up.

Your mortgage lender may also throw in some extra fees for administration costs known as a mortgage exit fee.

What Fees Will You Have To Pay Your New Lender

As a new customer with another lender you will face set-up costs. These are usually as follows:

  • Your new lender will want a survey done for valuation of your property. Generally a mortgage valuation is sufficient and new lenders will often pay the fee for the survey
  • There will be some legal fees although they should be minimal
  • There will definitely be an arrangement fee and they are continually increasing in a huge range from 99 pounds up to 5,000 pounds or it is charged as a percentage of the mortgage