Switching mortgages may not be something you have thought about before due to the high penalties, which you may have to pay, but think again….
There are many reasons why this unlikely choice could actually save you money.
Interest rates set to rise
In the UK we have been experiencing record low-interest rates due to price wars between lenders, with some lenders offering rates as low as 0.79% back in October. If you were unable to take advantage of these low rates previously, you may be able to switch to a lower rate but you’ll need to act fast.
At the time of writing the Bank of England has frozen the current base rate at 0.1% for a few weeks more however for how long we don’t know. Many lenders are offering competitive rates for borrowers as a result and average interest rates have only edged up and are still very low.
Why switch mortgages?
Many mortgage deals which were initially cost-effective will have reverted to a lender’s standard variable rate (SVR).
An SVR is the interest rate you will switch to when your initial mortgage deal ends. Mortgage deals give you a fixed rate (or lower variable rate) for a number of years, usually between two and five, after which they will revert to the SVR.
Being on the SVR can have a big effect on the amount you pay each month and reverting to it means that you could be paying a lot more than you should be!
The SVR moves in line with the Bank of England base rate, so households currently on the SVR would see an immediate increase in their mortgage payments if interest rates rise.
Remortgaging or switching mortgages is the most popular way to avoid your lender’s SVR.
Homeowners in Ireland could save more than €4,000 a year by switching to a different mortgage provider (doddl.ie).
Switching mortgages does not have to be complicated and getting the paperwork together is relatively straightforward.
Worried about penalties
The penalty you pay for leaving your current provider can look like a hefty one.
However, these penalties may be offset by the long-term savings you will make by switching to a lower interest rate.
How do I switch mortgages?
Over the last 12 months there has been a lot of downward movement in rates. It is worth reviewing your interest rate and looking at options on the market – however only switch if it makes sense to do so.
Book a call with one of our mortgage experts to look at the savings that could be made over the remaining term of your mortgage.