It is certainly well-known that switching is a way to save money. Utility providers, insurers, and most similar companies will give you a good deal for a year or two, then once the contract runs out you need to look elsewhere if you don’t want to end up paying over the odds. Whether we actually do take the time and effort to go elsewhere is another matter, but at the very least we all know that we should.
Switching a mortgage, on the other hand, is something that a lot of people are less willing to consider. It takes more effort than just changing energy or broadband provider, and it is often harder to work out whether you are going to be better off. Even so, if you are on a fixed mortgage but the initial rate has come to an end it can be well worth looking into the question of whether you should remortgage and take out a new fixed deal.
Why Switch Mortgage Deals?
While there are other reasons you might want to remortgage, the best reason to switch mortgage deals is simply the same as the reason for changing car insurance provider when you renew; to get a better deal and save money. On a fixed-rate mortgage deal, once the attractive initial rate has run out the follow-on rate you are moved onto tends to be much higher, often more than double. This means monthly repayments are higher, and of course that you end up paying more. Switching to a new fixed rate deal will get you back onto an introductory offer and save you money – quite a lot over the full term. It will also lock you into that better rate for anything from two to ten years. This could be an even bigger advantage when rates go up, which current forecasts suggest will happen by early next year.
There are likely to be fees involved with switching mortgage deals. Essentially, rather than simply moving to a different provider as you would be with other kinds of switching, you are taking out a new mortgage and using it to pay off the old one. As such, there are likely to be fees involved with taking out the new deal, and there may be early repayment fees on the old one. You will usually be able to add these fees onto the new mortgage so you don’t need to find the money all at once.
The question of whether it is worth switching is a slightly more difficult one. Essentially, all you have to lose aside from the time and effort involved in taking out the new deal are the fees. These are most likely more than balanced out by the lower interest rate, and lower monthly repayments also serve to make the mortgage more manageable. The only way to be certain you will gain on the deal, however, is to crunch the numbers. Online calculators make it easier to work out the repayment costs of your current mortgage and possible new deals, making it easier to figure out how much you would save and compare that to any fees involved.