Rate Switch Or Remortgage?

Main guide

What is a rate switch?

A rate switch, also called a product transfer, is when you move onto a new mortgage deal with your existing lender. You are not usually moving the mortgage to another bank or building society. Instead, you choose from the products your current lender makes available to you.

This can be useful when your fixed, tracker or discounted deal is ending and you want to avoid moving onto the lender’s standard variable rate. A rate switch may be quicker than a full remortgage because the lender already holds your mortgage.

What is a remortgage?

A remortgage is when you move your mortgage from your current lender to a new lender. This may be done to secure a new rate, raise extra funds, change the term, adjust the mortgage structure or move to a lender with more suitable criteria.

A remortgage normally involves a new application. The lender may assess your income, outgoings, credit history, property value and mortgage requirements. There may also be legal work and a valuation.

Both options can be useful, but they should be compared properly before deciding.

Your home may be repossessed if you do not keep up repayments on your mortgage.

What should you compare?

When deciding between a rate switch and remortgage, it is important to compare the total picture, not just the interest rate. A product with a lower rate may have a higher fee, and a deal with a slightly higher rate may include useful incentives.

You may need to compare:

• monthly payments
• product fees
• valuation fees
• legal fees
• cashback or free legal incentives
• early repayment charges
• whether you need to raise extra funds
• whether your circumstances have changed
• future flexibility, such as overpayments or moving home

A rate switch may involve fewer checks, which can be helpful if your circumstances have changed and a new lender may be harder to pass. However, staying with your current lender could mean missing a better option elsewhere.

A remortgage can widen the choice of lenders, but the new lender will usually carry out affordability and credit checks. If your income, outgoings or credit profile have changed, this may affect what is available.

The best route depends on the full cost, your plans and whether the product fits what you need now.

When a rate switch may make sense

A rate switch may suit some borrowers when the current lender has a competitive deal, the process is simple, or the borrower does not want a full remortgage application. It may also be useful if income, employment or credit circumstances have changed and switching lender could be more difficult.

Some lenders allow existing customers to secure a new deal several months before the current deal ends. The timing and rules vary, so it is worth checking early.

When a remortgage may be better

A remortgage may be worth considering if another lender offers a better overall deal, if you want to raise funds, change the mortgage term, consolidate parts of your borrowing or move to a product with features your current lender does not offer.

A remortgage may also be useful if your property value has increased and your loan-to-value has improved. This could give access to different product options, subject to lender criteria.

What if your circumstances have changed?

If your income has reduced, you have become self-employed, changed jobs, taken on new credit or had credit issues, the remortgage route may need careful planning. A new lender will usually assess affordability and credit profile again.

In some cases, a product transfer with the current lender may be simpler. In other cases, a specialist lender or different approach may be available. This is where advice can be helpful.

Avoiding the standard variable rate

If your current deal ends and you do nothing, you may move onto the lender’s standard variable rate. This can often be higher than fixed or tracker products available at the time, although rates can change.

It is sensible to review options before the deal ends. Waiting until the last minute can limit time for advice, documents, legal work and lender assessment.

Common mistakes to avoid

One common mistake is accepting the first product transfer offered without comparing it. Another is focusing only on the headline rate without checking fees and total cost.

It is also important to check whether an early repayment charge applies if you leave your current deal before it ends. Switching too early could be expensive unless the new option justifies the cost.