How much can I save by switching my mortgage?

When it comes to managing your finances, your mortgage is often one of the biggest monthly expenses. But what if you could reduce this cost significantly? In the UK, switching or remortgaging your mortgage can lead to substantial savings. Let’s explore how much you can save by switching your mortgage and what factors you should consider.

Table of Contents hide

1 Understanding remortgaging

2 Potential savings from switching

3 Case Study:

4 Steps to switch your mortgage

5 Is switching right for you?

6 In summary

7 FAQs

Understanding remortgaging

Remortgaging involves switching your current mortgage deal to a new one, either with your existing lender or a different one. This is typically done to secure a better interest rate, reduce monthly payments, or release equity. The main goal is to improve your financial situation.

Potential savings from switching

The amount you can save by switching your mortgage depends on several factors, including:

Interest rates: The primary reason most people switch mortgages is to take advantage of lower interest rates. Even a small reduction in the interest rate can lead to significant savings over the life of the mortgage.


Mortgage balance: The larger your remaining mortgage balance, the more you stand to save. For instance, on a £200,000 mortgage, a 0.5% reduction in interest rate could save you approximately £1,000 per year.


Remaining term: The longer the remaining term of your mortgage, the greater your potential savings. A lower interest rate applied over a longer period amplifies the savings.


Fees and costs: While switching can save you money, it’s important to consider any fees associated with remortgaging. These can include early repayment charges, arrangement fees, and legal costs. Make sure the savings outweigh these costs.


Case Study:

Consider a homeowner with a £150,000 mortgage at an interest rate of 3.5% with 20 years remaining. By switching to a new mortgage deal at 2.5%, they could save approximately £1,200 in the first year alone. Over the entire mortgage term, the savings could amount to more than £20,000, even after accounting for remortgaging fees.

Steps to switch your mortgage

Review your current mortgage: Check your current interest rate, the remaining balance, and any penalties for early repayment.


Shop around: Compare deals from different lenders. Look for the lowest interest rates and consider fixed, variable, or tracker mortgages based on your financial situation and market conditions.


Calculate the savings: Use online calculators to estimate your potential savings. Factor in any remortgaging costs to get a clear picture.


Seek professional advice: A mortgage broker can help you find the best deals and navigate the remortgaging process. They can also provide advice tailored to your financial circumstances.


Apply for the new mortgage: Once you’ve selected a deal, submit your application. The new lender will assess your creditworthiness and conduct a property valuation.


Complete the switch: Upon approval, your new lender will settle your existing mortgage, and your new terms will take effect.


Is switching right for you?

Not everyone will benefit from switching their mortgage. It’s essential to consider your individual circumstances, including:

• Loan-to-value ratio (LTV): If your LTV ratio is high, you may not qualify for the best rates.
• Credit score: A lower credit score might limit your options or increase the interest rate offered by new lenders.
• Future plans: If you plan to move soon, the costs of switching might outweigh the benefits.

In summary

Switching your mortgage can lead to significant savings, but it’s crucial to weigh the potential benefits against the costs. By carefully considering your options and seeking professional advice, you can make an informed decision that improves your financial health. If you’re unsure where to start, consult with a mortgage advisor who can help you navigate the complexities of remortgaging and maximise your savings.

FAQs

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