When applying for a new mortgage the vast majority of people will choose a specific interest rate that is on offer. This could be a fixed rate that lasts for 2, 3 or 5 years or perhaps a 3 year tracker deal. When these rates come to an end you need to make a decision, and if you don’t the rate will change to the much more expensive Standard Variable Rate or SVR.
It’s almost always better to choose a new interest rate product but it is important to get the choice right so it suits your needs and future plans.
We take a look at the benefits of remortgaging with your current mortgage lender and how this could compare with a new deal with a different lender.
Top five reasons why homeowners put off remortgaging
What does remortgaging with the same lender mean?
We mentioned above that virtually all interest rate deals will come to an end. At that point your lender will write to you with some offers of new rates.
The only exception would be a ‘lifetime’ deal such as a lifetime tracker or lifetime discounted rate. These simply carry on, forever…
Your lender will want to keep you as a borrower and will provide a few different interest rates for you to choose from. The options available will depend on the lender.
You select which one you would like and then let the lender know, probably via an online form. Your new rate will start once your current rate has ended, nice and simple.
Why remortgage with the same lender?
The main benefit for most people is that it is a very simple process. We understand that mortgages are not super interesting and you don’t want to think about them any more than you absolutely have to.
So when that letter or email arrives offering these new product transfer options, you can have it sorted in just a short while.
There’s no income or affordability checks, so if your circumstances have changed this could be in your favour. If you move to a new lender they will want to see all of the usual proof of income etc.
The whole process is quicker than moving to a new lender. That said, there’s no need to rush the process and your mortgage broker would handle most of the paperwork and negotiations anyway.
The property
Occasionally the property can cause complications when considering a remortgage.
In moving to a new lender they will need to assess you (the borrower) and your home (the property). They need to be happy with both. If your property is not in the best condition, or is classed as non-standard construction, then you will have fewer lenders to consider.
Whereas with a product transfer, your current lender has already accepted your property and will not normally need to inspect it again.
A few property types to watch out for would be:
- Timber framed houses
- Prefab concrete houses
- Steel frame houses
- Ex-council houses
- Flying freeholds
CONTACT A REMORTGAGE EXPERT
If you wish to investigate your re-mortgage options we can put you in touch with a fully qualified whole of market mortgage broker.
What is a Product Transfer?
A Product Transfer is how the lenders refer to a remortgage with the same lender. It’s more literal but less friendly.
Remortgaging is normally how you would describe the process of changing your mortgage lender but without moving. But as more and more borrowers are having to make product transfers the phrase now has two slightly different meanings.
It’s now very common for mortgages to be set up on a 2-5 year deal. Then at the end you will choose another 2-5 year deal. And so on.
How to remortgage with the same lender
You will be pleasantly surprised at how simple a product transfer is.
Your lender will contact you a few months before your deal is due to finish. They will explain what is happening and list some interest rate options for you to consider.
This is likely to include some fixed and variable rates lasting for different amounts of time.
After you have decided which rate you prefer you just contact the lender and let them know. When your current rate ends the new one will start straight away!
Your monthly payment will be changed automatically.
A word of warning
It’s important to remember that the process of moving your interest rate is not automatic. You will need to advise the lender of your decision to switch.
If you don’t then your mortgage will be switched to the default Standard Variable Interest Rate (SVR). This is normally much more expensive.
Should you switch to a new lender instead?
You are under no obligation to stay with your current lender and most people will have at least 2 or 3 different ones during their lifetime.
The expiry of an interest rate product is the perfect opportunity to look at your mortgage as a whole and see if it still suits your needs. When most deals come to an end it also means that any early repayment charges have also ended. So should you switch to a new lender the decision is that much easier and cheaper.
Ask yourself these two questions:
Is this the best interest rate I can get?
It would be a good idea to compare the best product transfer rate you have been offered to those available from a new lender.
You might be surprised how much could be saved each month just by looking around.
If you do this with an independent mortgage broker then they can trawl through thousands of different deals in no time at all.
Do I need anything more from my mortgage?
What we mean here is:
- Do you need to borrow any more money?
- Would you like to change the term?
- Is an offset mortgage more suitable for you now?
- I need to change over to a buy to let
- I need to buy out my partner
Any of these points could mean that remortgaging to a new lender is your better option.
A product transfer is just that. You are changing to a new interest rate and everything else stays the same. Should you wish to borrow any more money then you will need to fill out an application form to apply for a further advance.
It’s true that applying for a remortgage with a new lender could take a bit longer and cost a bit more. But you would only do this if the deal is that much more cost effective or you need to change something about your mortgage. Just switching to a new product won’t let you borrow anymore money. So if you are considering consolidating debts then a remortgage would work better.
Don’t be put off if you need to pay some mortgage fees. Ask your broker to see what effect these have on the whole mortgage before making a decision.
It will be very simple for any mortgage adviser to compare two or three different deals over say five years to see which one is the cheapest overall.
Our article Mortgage product transfer vs remortgaging compares these two options, side by side. Whether or not you need to borrow any extra money, there’s a number of acceptable reasons for choosing to remortgage. If you use a broker then they can let you know which documents are needed for the remortgage application.
QUESTION – What’s the difference between 3% and 3.5%?
ANSWER – £12,000!
The monthly repayment for a £200,000 mortgage over 20 years is:
- £1109.20 at 3% and
- £1159.92 at 3.5%
Over the full mortgage term this difference adds up to over £12,000!
Which rate would you rather have?
When is it not a good idea to move lender?
When you remortgage to a new lender you will be applying for a new mortgage, with all that it entails. Payslips, bank statements, affordability checks etc.
If your financial position has changed then perhaps you would not be accepted by a new lender. If you are recently self-employed with no proof of income, or your credit position has deteriorated. Maybe you now have a second charge loan.
In these circumstances you are likely to be better off by accepting the product transfer and then waiting to remortgage when this deal ends.
If in doubt always ask a broker for their point of view.
So which is better – product transfer or remortgage?
As you will have seen they both have their good points and their bad points.
A product transfer is fine if you are sure it’s the best rate and your mortgage doesn’t require any changes. It’s also the best choice where your current income position is not sufficient for a new lender.
A remortgage over to a new lender good get you a much more competitive interest rate and perhaps the ability to borrow a bit more money because your house has increased in value.
You don’t want to be on the wrong side of the £12,000 example above. Let us introduce you to a mortgage expert who can explain your options and arrange either the product transfer or a new remortgage for you.
FAQs
What’s the difference between product transfer and porting?
A bit more mortgage jargon to decipher for you.
Product Transfer – This is a remortgage with the same lender but without moving home.
Porting – Porting involves moving home with your current lender and taking your current interest rate deal with you.
Will I need a solicitor?
There’s no requirement for a solicitor when you choose a product transfer.
When remortgaging to a new lender there is legal work to be done. Our article Do you need a solicitor to remortgage? takes a deeper look.
Will I need a credit check?
Not for a product transfer but this will be needed when applying to a new lender.
If you are considering the remortgage option but are unsure about your credit status it would be wise to obtain a copy of your credit report.
Should I use a broker?
Many people do prefer to arrange their own mortgage and you are under no obligation (sadly) to use a mortgage broker.
However, if you do not use a mortgage expert then you will never know if you have chosen the best deal.
