Switch Mortgage

If you’re a homeowner looking to switch mortgages, you could potentially save thousands of pounds over the course of your mortgage or take years off your mortgage term.  

Whether you’re looking for an improved interest rate or better terms, there can be a number of factors to consider and benefits available from switching. 

Switching mortgages gives you the opportunity to get a new mortgage on your current home, moving away from your current interest rate and terms, and using any additional equity you have built up in your property since your mortgage started as collateral to lower your costs. 

But before you make the switch, it's important to understand the process and the potential costs involved. In this article, we'll cover everything you need to know about switch mortgages. 

What is a Switch Mortgage? 

A switch mortgage is just changing your current mortgage to a new one.  

This is typically with a new lender, but you can get a new mortgage deal with your current lender too - although, it’s recommended you shop around to find a good offer. 

You can switch mortgages for a variety of reasons, but it’s usually when your current fixed term is ending: 

• You can shop around to get a lower interest rate 

• You can reduce your monthly repayments  

• Or switch mortgage type entirely from a variable to a fixed rate or vice versa depending on your preferences 

How to Switch Your Mortgage 

The process of switching mortgages will depend on your lender and the type of mortgage you have. Here are the general steps involved: 

1. Look for mortgage deals that are suitable for your needs and compare them to your current mortgage. At this point, you can work with a mortgage advisor to help find you a better deal and do all of the work for you. 

2. Before you switch, make sure to check your current mortgage for any early repayment charges or exit fees. 

3. Once you've found a suitable mortgage deal, you'll need to apply for it. This typically involves providing documentation and going through credit and affordability checks. 

4. It can take a few weeks to get approval for a new mortgage. During this time, you'll need to provide any additional information or documentation requested by your lender. 

5. Once your new mortgage is approved, you'll need to complete the switch. This typically involves paying any fees or charges associated with the new mortgage and ensuring that the new mortgage is registered with the Land Registry. 

How Much Does it Cost to Switch Mortgages? 

Switching mortgages can come with a variety of costs, including: 

Early repayment charges or exit fees 

These are fees that may be charged by your current lender for ending your current mortgage early. 

Mortgage arrangement fees 

These are fees charged by the new lender for arranging the new mortgage. 

Valuation fees 

This is a fee charged by the new lender to value the property. 

Legal fees 

These are fees charged by solicitors or conveyancers for handling the legal aspects of the switch.

When considering the costs of switching, it's important to weigh them against the potential savings you could make by switching to a new mortgage with a lower interest rate or better terms. 

Questions to Ask Before Switching Mortgages 

Before you make a decision, it's important to ask yourself some key questions to establish what you are looking for and how you can get the most out of switching.  

• What type of mortgage is best for me? 

• How much will I have to pay in fees? 

• What is my current mortgage term? 

• Do I have a penalty to switch from my current mortgage provider? 

• What is the repayment period? 

Important Documents Needed to Switch Mortgages 

Switching mortgages can be a daunting task, but it's not as difficult as it may seem and is often easier than the first time you applied for your mortgage.  

You'll need to gather some documents and fill out some forms.  

The following are the most important things you'll need: 

• Proof of income (such as pay slips or tax returns) 

• Bank statements  

• Current mortgage documents 

How much money can I save by switching mortgages? 

This will depend on your own circumstances including interest rate, loan to value (LTV) and borrowing amount.

We can take a look at an example switch which demonstrates potential savings that could be made with a 0.5% reduction in interest rate. 

Here's a table comparing a mortgage with a 5% interest rate to one with a 4.5% interest rate over 20 years, assuming a loan size of £300,000. 

As you can see, by switching to a new mortgage with a lower interest rate of 4.5%, you could potentially save £54 per month on your mortgage payments, or £3,240 over the course of a 5 year fixed term.  

Note: The figures above are hypothetical and for illustrative purposes only. Actual savings will depend on individual circumstances and market conditions. 

Things to Consider When Switching Mortgages 

Before you switch mortgages, there are a few things you should consider: 

• Make sure to check the terms of your current mortgage for any early repayment charges that apply if you switch. 

• Look for a new mortgage with a lower interest rate than your current mortgage, as it could save you money over the long term. 

• Consider how much your monthly payments will be on the new mortgage and whether you can keep up with them. 

• Look at the length of the new mortgage and how it fits with your long-term finances 

• Think about any fees or charges associated with the new mortgage, and weigh them up against the potential savings. 

Can I Switch My Mortgage at Any Time? 

In general, you can switch your mortgage at any time. However, you may need to pay early repayment charges or exit fees if you switch before the end of your current mortgage term.

Make sure to check the terms of your current mortgage for any restrictions or charges that may apply. 

It’sgenerally more common to switch your mortgage at the end of your current deal.

If you’re unsure about your specific situation, it’s recommended to speak to a mortgage adviser for help. 

Is it better to switch mortgages? 

Deciding whether to switch your mortgage is a big decision and it's important to consider both the pros and cons before making any moves.

Let's take a closer look at some of the advantages and disadvantages of switching your mortgage. 

Pros of mortgage switching

• Lower interest rate 

One of the biggest reasons to switch your mortgage is the lower interest rates that may be available. This can help you save money on your monthly mortgage payments and the overall costs for the life of your mortgage. 

• Better mortgage terms 

Switching your mortgage can also give you the opportunity to find a mortgage with better terms, maybe shaving years off your mortgage or switching to a tracker rate. 

• Debt consolidation 

If you have multiple debts, switching your mortgage to a debt consolidation loan can help you manage your finances more effectively by combining your debts into a single payment with a lower interest rate. 

• Home improvement 

Switching your mortgage can also provide the opportunity to borrow additional funds for home improvements or renovations. 

Cons of mortgage switching

• Fees 

Switching your mortgage may come with fees and charges, such as exit fees and arrangement fees. It's important to factor these costs into your decision. 

• Early repayment charges 

 If you switch your mortgage before the end of your current mortgage term, you may be subject to early repayment charges. You should consider this and how it would impact your overall savings over the term of your mortgage. 

• Credit score 

Applying for a new mortgage can impact your credit score, particularly if you have multiple applications within a short period of time. This could potentially impact your ability to secure other credit in the future. 

• Time-consuming 

Switching your mortgage can be a time-consuming process, particularly if you're switching to a new lender. 

Switching mortgage to another bank 

When switching your mortgage you don’t need to stay with your current lender. Comparing mortgages from the whole market and having the freedom to switch to another bank often gives you the best chance of getting a better interest rate.  

Here's how switching lenders works: 

• Start by researching the different mortgage options available across the market, check mortgage comparisons or speak to a mortgage broker. Consider the factors that are most important to you such as interest rates, mortgage terms and any fees and charges involved 

• Before applying for a new mortgage, it's important to get a mortgage agreement in principle (AIP) from the lender. This will give you an idea of how much you can borrow and what your interest rate will be. 

• Once you have a mortgage agreement in principle, you can apply for a new mortgage with the lender of your choice. 

• The new lender will typically require a valuation and survey of your property to ensure it's worth the amount you're borrowing. 

• Once the valuation and survey are complete, the legal process will begin. This involves transferring the ownership of the property from the current lender to the new lender. 

• Once the legal process is complete, the new mortgage will be in place and you can start making repayments. 

Switching mortgage rates types 

Switching your mortgage rates can also be a way to save money on your mortgage repayments depending on your current interest rates and terms. Here are the options available: 

Fixed rate to variable rate 

If you're currently on a fixed rate mortgage, switching to a variable rate mortgage could potentially save you money if interest rates go down (although the opposite can be true if rates go up!) 

Variable or tracker to fixed rate 

If you're on a variable or tracker mortgage, switching to a fixed rate mortgage could provide stability and certainty, particularly if you're concerned about interest rates rising in the future. 

FAQs 

Is it difficult to switch mortgages? 

Switching mortgages can be a complicated process, but it doesn't have to be and often easier than your first mortgage application. 

Working with a mortgage broker or financial advisor can help simplify the process and ensure that you get the best deal possible. 

How much does it cost to switch mortgages? 

The cost of switching mortgages can vary depending on a number of factors, such as the terms of your current mortgage and the fees and charges associated with the new mortgage.  

It's important to carefully consider these costs before making the decision to switch. 

Can I switch my mortgage at any time? 

Most mortgages will have early repayment charges or exit fees if you switch before the end of the fixed term. Check your specific policy to make sure switching is a cost-effective option for you. 

How do I know if it's the right time to switch mortgages? 

The decision to switch mortgages should be based on a number of factors, such as interest rates, fees, and the terms of your current mortgage. 

If your mortgage is approaching the end of its fixed term this is often the best time to start comparing mortgages available on the market and looking to switch. 

Working with a financial advisor or mortgage broker can help you make an informed decision based on your individual circumstances. 

Will switching mortgages affect my credit score? 

Applying for a new mortgage can impact your credit score, but the impact is usually short-term.

It's important to carefully review your credit report and credit score before making the decision to switch mortgages.

It is typically recommended to reduce any debts or borrowing and increase your credit score where possible before making the switch.  

Switching Mortgages: The Bottom Line 

Switching mortgages can be beneficial, but it's important to weigh up the pros and cons. Be aware that there are risks involved with switching mortgages. 

If you're thinking about switching mortgages, here’s a recap on what to consider: 

• How long have I been with my current lender? If it's been less than five years, then you may not be eligible for a new mortgage yet depending on the deal you took out. You might be better off waiting until your original term is up before applying again. 

• Do I want a fixed rate or variable rate? While most people prefer fixed rates because they know what their payments will be each month, they also tend to cost more than variable ones over time (depending on market conditions). If interest rates go up in future years--which some experts predict will happen--your monthly payment could increase significantly if your loan was based on an adjustable rate instead of being locked into one set amount per month indefinitely (or at least until maturity). A financial advisor can be best placed to advise whether you should look at fixed or variable rate mortgages based on the direction of the market and interest rates. 

Switching Mortgages - Key Takeaways  

• Switching mortgages involves transferring your existing mortgage to a new lender, usually to take advantage of better interest rates or repayment terms. 

• There are costs associated with switching mortgages, including exit fees, valuation fees, and legal fees, which should be carefully considered. 

• When considering switching mortgages, it's important to evaluate your personal financial situation, such as your credit score and employment status, and consider the impact on your long-term financial goals. 

• Switching mortgages can offer potential benefits, such as saving money on interest payments, but there are also potential downsides, such as the risk of unexpected costs and fees. 

Switching mortgages can be a beneficial way to save money and access better features using changes in the economy or the equity gained in your home on your current mortgage.

However, it's important to do your research and understand the process before making a decision.