Why it pays to review your mortgage regularly
Is your current mortgage as competitive as the best new deals on the market today? You can save hundreds – perhaps thousands – of pounds by shopping around, so it’s a good idea to review your mortgage at least once a year to check whether you should switch to a better deal.
- How often should you review your mortgage?
- How much can you save by remortgaging?
- Look out for remortgage costs
- Before you switch
- Where to compare mortgage deals
How often should you review your mortgage?
Ideally you should keep a regular eye out for better mortgage deals – new ones are coming on to the market all the time and if you’re not locked in to a fixed or discount rate deal with an early repayment charge it could be worth your while changing lenders (remortgaging) at any time.
At the very least, you should review your mortgage:
- when interest rates change – because this will affect how competitive your current deal is
- when your current mortgage deal comes to an end – as your rate may increase, and
- once a year if you’re not tied in to deal with early repayment penalties – to see how your current deal compares to new deals that have come onto the market
If you doing nothing when rates change or your mortgage deal ends you could lose out to many better deals that are available in the market.
Set up a reminder to review your mortgage
Set up a reminder now to review your mortgage once a year – or before your current fixed deal ends. You could save yourself hundreds of pounds!
Set a diary reminder to start shopping around at least three months before your current fixed or discount deal reverts to the lender’s standard variable rate.
How much can you save by remortgaging?
When you make the switch, if monthly payments are going to be lower you can choose either to make reduced payments or – better still – stick to your original payments and reduce the mortgage term.
Let’s say you have £175,000 still to repay on your mortgage with a remaining term of 20 years. You’re on a 5% deal repaying £1,115 a month.
But property prices are on the up, so the value of your home has risen. This means more competitive deals are now available to you and, if you reviewed your mortgage today, you’d see that you can switch to a much cheaper deal at just 3%.
Example monthly repayment saving if switching from a 5% to a 3% deal
|Monthly payments on £175,000 at 5%||Monthly payments on £175,000 at 3%||Cost saving
(after any remortgage fees)*
|£1,115||£971||£144 a month or
£1,728 a year
Use the links below to check your property value and see what you might save by remortgaging to a lower rate. However, before making any switch always check what fees you’ll have to pay – see ‘Look out for remortgage costs’ below.
Look out for remortgage costs
Although you can often reduce your payments by switching, bear in mind that there are a number of costs associated with remortgaging.
- There may be high early repayment charges to pay if you are leaving before the initial locked-in period of your mortgage expires. There are unlikely to be charges if you are on your lender’s standard variable rate.
- Your new lender may charge you valuation and legal fees, although these are often waived if your remortgage is successfully completed. Always ask about these fees when comparing products.
- There is likely to be an exit fee to pay when you leave your current lender. Factor this into your costs.
- There is also usually a booking or arrangement fee to pay on the new deal – you can opt for a fee-free deal to avoid booking or arrangement fees, but you may end up paying a higher interest rate as a result.
So be sure to weigh up the total cost of any remortgage against the savings you’ll make, before you actually take the plunge and remortgage.
If you don’t fancy doing the sums yourself, read our guide to Choosing a mortgage – how to get the right deal to find out whether it might be worth asking a mortgage broker to help you.
Before you switch
Since April 2014, lenders have to look much more closely at whether you can afford a mortgage because of new regulations. This means it may take longer than you’re used to and you’ll have to provide proof of your income and all your outgoings.
You could be asked for your payslips and bank statements to prove your income, or your tax returns and business accounts completed by an accountant if you’re self-employed.
Your outgoings will be set against your income to see how affordable your mortgage is. They will look at your other debt repayments, household bills and living costs such as travel, childcare and entertainment.
They’ll also check how you would cope with an increase in the interest rate or changes in your lifestyle such as losing one person’s income in the case of couples.
This means you may find it hard to remortgage to a new lender. So before you switch, check your remortgage costs and contact your current lender to see what deals they will offer you.
If you’re on an interest-only mortgage you will find lenders will look closely at your repayment plan to make sure it’s on track to pay back the original loan at the end of the mortgage. If it isn’t, you may find it difficult to switch to a new interest-only mortgage.
Lenders will accept different repayment plans such as regular savings and investments; using future bonus payments with supporting evidence and the future sale of a valuable asset backed by an up-to-date valuation certificate.
If you decide to switch to a new mortgage on your own you will have to research the market and choose a product without any help or advice.
Once you’ve made your choice, you’ll need to give the lender detailed instructions about the mortgage you want, how much you’re borrowing, the value of your home and how long you want the mortgage to last.
This is known as execution-only so the lender will write to you confirming you haven’t had advice or an assessment of whether the new mortgage is suitable for you, which you’ll need to confirm.
Where to compare mortgage deals
Comparison websites are a good starting point for anyone trying to find a mortgage tailored to their needs.
We recommend the following websites for comparing mortgages:
- Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
- It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.
- Find out more in our guide to comparison sites.