Most Common “How” Google questions on Mortgages answered.
We are starting a new series where we try to answer the most common questions on mortgages googled by homeowners.
How early to remortgage before the current rate end?
When your existing rate comes to an end, you have two main options.
- Stay with current lender and get another rate with them. This is called rate switching.
- Research the market to find, if another lender has a better rate. Then switch mortgage to them. This is called remortgaging.
All lenders like to retain their customers, so they try to prevent the customer from becoming a “rate tart”, i.e. switch to another. However, not all are generous enough to offer market leading rates to existing customers as they are taken for granted.
Some will try to entice you months before the end of an existing rate, even up to 7 months before the end. It means the benefit of a good rate can be cut short leaving the customer loosing £1000s over the term of the mortgage.
Best is to switch a month before end of the rate so you can explore all the rates from other lenders as well. This may mean doing your research a couple of months before the deadline. You can do a comparison yourself or ask a broker to do it.
On the other hand there are advantages to staying with the existing lender. If there is no change to the loan and term, switching is quick and easy and there is no credit scoring. If you have a broker they can arrange the switch painlessly while looking at other options as well.
If a change in the terms of the loan is required, such as additional borrowing, change to payment method or term of the loan; then it will be treated as a new application. The lender will carry out checks on credit status, income etc.
Disadvantages of staying with the existing lender are, missing out on a better rate with another and possible better lending terms such as higher income multiples.
What happens if rate is not switched at end of term?
The lender will automatically switch the loan to their Standard Variable Rate or SVR. This will almost likely to be higher than the special rate the lender gave to obtain you as a client. It may mean £1000s extra payment annually.
Example: Current loan of £250,000 has a fixed rate of 2% and the loan term is 25 years.
The monthly payment = £1,059.64
The rate moves to a SVR of 4% if the rate is not switched on time.
The new monthly payment = £1,319.59.
That is additional £3,120 annually.
What if the rate switch deadline is missed?
When you are on the standard variable rate you are allowed to switch or move lender without a penalty. So it is always best practice to check you are not on a SVR and if so try to find a better deal.