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Switching your mortgage lender

The mortgage market changes all the time - interest rates fluctuate and mortgage lenders adjust their prices.

To avoid paying higher rates, many borrowers switch their mortgage, a relatively simple and cheap process that involves transferring from one mortgage loan to another.

If you are on a high interest rate, then it makes sense to at least look at remortgaging. Just remember to take into account any early redemption fees, possible legal expenses and arrangement and valuation fees that may apply.

Why are there legal expenses?

Remortgaging is a legal process. Effectively, your lender owns your house with you. This means if you are swapping lenders, solicitors will need to be involved as the names on the deeds will change.

However, it should be a relatively simple process and shouldn't take more than a few weeks to complete.

Why switch?

With low interest rates, it makes sense to pay as little as possible on your mortgage.

If you're on a standard variable rate (SVR), then a fixed-rate deal could cut your costs and give you the advantage of knowing how much you'll pay during that period.

When not to switch

Don't switch if the costs of doing so will outweigh the advantages of being on a lower rate.

Even if your would-be new lender is paying your valuation and legal fees, if you're going onto anything other than a standard variable rate then it's likely that you're going to pay an arrangement fee.

And if it's a fixed or special deal mortgage you're planning to escape from, you're likely to have to pay hefty early redemption charges which could easily mean a four-figure bill.

There's no point in doing that unless you'll quickly get those fees back from paying a lower rate. And that's only likely if you have a large mortgage and there's a big difference between the rate you're on and the one you want to move to.

When you can't switch

If your current mortgage is for more than your home's value (in other words, you're in negative equity) you're going to find it hard to remortgage. If you're behind with your payments, then it will be pretty well impossible.

If you've changed jobs recently and gone self-employed, you might find it hard to switch until you've got established accounts.

And if you've got structural problems with your house (such as subsidence) it will also be hard to switch lenders.

If I want to switch, what are my mortgage choices?

Here are guides to the options open to you:

Fixed-rate mortgage: Switching to a fixed-rate mortgage means fixed monthly repayments for an agreed period.

Tracker mortgage: Switching to a tracker mortgage means that the mortgage rate is aligned to a set benchmark rate, such as the Bank of England base rate. This means that repayments can go up or down.

Variable rate mortgage: Switching to a variable rate mortgage means that the rate can move up or down in line with the lender's standard variable rate.

Discounted rate mortgage: Switching to a discounted variable rate mortgage means that the borrower pays a discounted rate for a certain period of time.

Lender Initial Rate Duration Standard Rate Overall Cost For Comparison Max Loan To Value Fee
2.59% 2 years 5.69% 5.4% APR 75% £999
2.69% 2 years 4.99% 4.9% APR 75% £495
2.79% 2 years 4.99% 5% APR 75% £795
2.94% 2 Years 5.69% 5.4% APR 75% £199
2.99% 2 years 4.99% 4.9% APR 85% £495
2.99% 3 years 4.99% 4.6% APR 70% £499
3.0% 2 years 5.69% 5.5% APR 80% £999
3.19% 5 Years 4.79% 4.2% APR 80% £995
3.5% 2 years 5.49% 5.1% APR 75% £595
3.84% 2 years 3.94% 4% APR 90% Nil

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