These days, most people tend to opt for relatively short term mortgage deals. However, when those deals run their course, finding a new one is usually essential. We tell you all you need to know about finding the best remortgage deal.
What happens if I don’t agree a new mortgage deal?
What happens after the end of your existing deal will depends on its terms and conditions. In most cases, your mortgage interest rate will simply revert to the lender’s standard variable rate (SVR, an interest rate that goes up and down since it is likely to be linked to the Bank of England Base Rate as well as a number of other measures).
At the moment, that could actually be good news - since the base rate is currently very low, you might well find that your monthly mortgage payment actually go down once your current deal ends.
Don’t assume that the SVR will be low or even good value, however. Check your lender’s terms and conditions carefully before your deal runs out. Depending on what you find out, you will need to either:
- Allow your mortgage to switch over to the SVR, but keep an eye out for attractive mortgage deals as the SVR will not stay low forever
- Start looking for a new mortgage deal two or three months before your deal runs out. If you leave it too late, you will end up paying the SVR for a month whilst your new deal is being agreed
Do I have to wait until my current deal expires before switching?
No, you can switch your mortgage to a new deal at any time. However, before you consider doing this, it is vital that you check the terms and conditions attached to your mortgage – most will set out redemption penalties (penalties for paying off your mortgage early, which is effectively what you are doing when you switch deals).
If redemption penalties are included in the terms and conditions, work out how much you would pay in penalties (or ask your lender to tell you). Then you can work out whether switching would save you money:
- Look at the cost of the new deal over the course of the mortgage term (i.e. two years for a two year fixed mortgage).
- Work out how much you would save over that period, by comparing the new deal with the cost of your existing deal.
- Subtract the redemption penalty and any other switching costs (e.g. product fees, valuation report fees that the new lender may charge). This will give you a total savings figure.
- If you would still save money, it might be worth switching deals mid term.
How do I go about finding the right mortgage deal to switch to?
If you are coming to the end of your current mortgage deal (we’ll cover ‘switching mid-term’ in a separate guide), you need to follow these steps:
1. Get started around two or three months before your current deal expires:
It can take six weeks or more to get a new deal in place, so it’s best to give yourself plenty of time to shop around. Remember a new deal can be agreed ‘in principle’ with the offer then remaining on the table for up to three months (don’t assume, check how long the deal will remain available).
2. Check the terms and conditions of your current deal:
Some mortgage deals (e.g. some discount rate mortgages) will include an ‘extended tie-in’ clause – meaning that you have to stick with the lender for a set period even after the term of the mortgage interest rate deal has expired, or pay a redemption penalty.
3. Ask your current lender for a 'redemption quote':
This will tell you how much you currently owe on that deal and, therefore, how much you will need to borrow in order to clear the debt and move to a new lender during a specific time period – if that is what you decide to do.
4. Shop around for the best deals on the market:
Even if you plan to stay with your current lender, it pays to shop around. For instance, if you find better deals elsewhere, you lender may be prepared to match them rather than lost you as a customer altogether.
To make your search for a ‘bargain’ easier, think about your requirements – for instance:
- Loan to Value (LTV): This is essentially the comparison between the amount you want to borrow and the value of your home. As a general rule of thumb, the lower the LTV, the better the mortgage deals that will be available to you.
- Type of deal: Most people these days go for the safe option of a fixed rate mortgage (the same interest rate thoughout the deal, which means predictable monthly payments), however, other options do exist.
- Interest rate: Obviously, this is one of the most important elements of your search as, a higher interest rate means higher monthly payments
TIP: To get started, visit the money.co.uk mortgage comparison tables, where you can compare details of every mortgage currently available. Use our Power Search feature to compare only those mortgages relevant to you (based on everything from LTV and interest rates to product fees).
5.Come up with a shortlist of possible deals, then work out their true cost:
The whole point of shopping around is to give yourself some options, and then assess which would work best for you.
The best idea is to select a number of ‘possibles’ (based on the aspects that are most important to you – but make sure they are products you are actually eligible for) and then work out their total cost over the course of the deal. The lender should be willing to provide you with an ‘illustration’ setting out the total cost – including interest and repayments as well as up-front fees associated with securing the mortgage deal.
Remember that looking at total cost it this way is the only way to really understand which is the best deal – for instance, a deal with low interest rates but very high up front products fees might actually cost you more than a deal with less attractive interest rates but far lower fees.
If you're not sure where to start then it's a good idea to seek advice from an indepedent, whole of market mortgage broker who will be able to point you in the right direction.
6. Contact your current lender:
It is worth remembering that, interest rates aside, it can be cheaper to stay with your current lender. That is, you will avoid a whole host of fees that are associated with switching to a new provider (for instance valuation reports and legal fees). So, once you have armed yourself with information on the best deals available elsewhere, you must also see what is on offer from your current provider:
- Be careful: Although most lenders will have a range of deals exclusively for ‘existing borrowers’, not all will be published on the lender’s website. DO NOT rely solely on the company’s website for information – check the money.co.uk mortgage comparison tables for the full range of deals available for existing borrowers, or call your provider direct. Otherwise you could end up paying more than you need to.
- Again, find out which deals you are eligible for and ask for an ‘illustration’ for those of interest. Use this illustration to compare the ‘full term’ cost of these deals with the total cost of your shortlisted deals from other providers.
- If you find that your current provider offers the best value overall and are keen to secure a new deal (rather than going onto the SVR), start the application process in plenty of time. Give yourself at least six weeks, just in case.
- If you find that you can beat your current provider’s best deal by going elsewhere, tell them and give them an opportunity to match the best deal from another provider.
7. Start the application process:
Once you have found a deal that you are happy with, it is best to start the application process in plenty of time. Ideally, you should give yourself at least six weeks if you are switching to a new provider.
You can often simply apply online or over the phone, though if you prefer (and if the lender has high street branches) you can do so in person. If your initial applications is successful, the lender will make you an ‘in principle’ mortgage offer – basically this means your application has been successful, provided that the information you provided in your application is accurate.
8. Appoint a solicitor:
At this stage, you will need to find a solicitor you trust to handle liaison with your current and proposed mortgage lender, as well as oversee the application process (conveyancing). This will include organising a valuation of your property and carrying out the legal work required to transfer your mortgage to a new lender (for instance the local searches and the transfer of title deeds). Your solicitor will also handle the transfer of funds between the two lenders (to pay off your existing mortgage).
Part of that process is to agree with the lenders a date for your new mortgage deal to commence. Although your solicitor will handle these arrangement for you, make sure that this date falls after any redemption penalties might be payable, but be careful that you do not leave it too late. Remember that most mortgages add interest on a set day during each month. Find out when your lender calculates and adds interest each month and be sure to complete your mortgage switch before then.
NOTE – Some lenders will include free conveyancing as part of the mortgage deal. Whilst this is not necessarily a bad thing, it’s important to remember that a solicitor appointed in this way will be working on behalf of the lender, not you.
