Check the costs
Before you switch be sure to check out the costs.
Some lenders might offer fee-free deals to tempt you, but if they don’t you’ll have legal, valuation and administration costs to pay.
You can use the Annual Percentage Rate of Charge (APRC) to help you compare deals.
The APRC is a way of calculating interest rates that incorporates some mortgage related fees in the calculation, giving you a way to compare mortgage deals.
What might look like a money saving deal could end up losing you money if you don’t do your sums first.
Reducing your loan-to-value to get a better rate
Every mortgage deal has a limit to how much you can borrow when compared with the current value of the property.
This is shown as a percentage and is called the ‘loan-to-value’.
When you remortgage, the lower the loan-to-value you need, the more deals that might be available to you – and you might be able to get cheaper mortgage deals.
How to calculate your loan-to-value
- Divide your outstanding mortgage amount by your property’s current value.
- Multiply the result by 100.
Your lender’s valuation
Bear in mind that when you apply for a mortgage, the lender’s valuation might just involve checking the outside of the property from the street.
If you think the valuation is much too low – and that you’re losing out on a better rate as a result – ask the lender to reconsider.
To support your case, you could provide evidence of the sale price of a few similar properties in your area and, if relevant, list the cost of any expensive home improvements you’ve carried out.
Remortgaging to get a better interest rate
When you take out a new mortgage, you normally get an introductory deal.
For example a low fixed or discounted rate or a low tracker rate for the first few years of your mortgage.
Introductory deals normally last for between two and five years.
Once the deal ends you’ll probably be moved onto your lender’s standard variable rate, which will usually be higher than other rates that you might be able to get elsewhere.
So when your introductory period ends, take a look at the market to see if switching to a new mortgage deal will save you money.
Bear in mind that if you only have a small outstanding mortgage the amount you stand to save might be too low to make switching worthwhile.
Remortgaging for more flexibility
Remortgaging might also enable you to get a more flexible deal – for example if you want to overpay.
Or maybe you want to switch to an offset or current account mortgage, where you use your savings to reduce the amount of interest you pay permanently or temporarily – and have the option to draw your savings back if you need them.
