Switching a mortgage deal with the same lender has become an increasingly popular option for homeowners looking to secure better terms without the hassle of changing providers. This process, often referred to as a product transfer, allows borrowers to potentially lower their interest rate, adjust their loan-to-value ratio, or explore different mortgage types such as fixed rate or offset mortgages. For many, it presents an opportunity to leverage their existing relationship with their lender and potentially save on fees associated with a full remortgage.
When considering a switch, homeowners should weigh the benefits against potential drawbacks. While it may offer a smoother transition without the need for a full credit check or property valuation, it’s crucial to compare the new deal against offers from other lenders. Factors to consider include changes in equity, current market rates, and any early repayment charges. This article aims to guide readers through the process of switching mortgage deals with the same lender, covering the steps involved, the role of mortgage brokers, and key considerations to ensure they make an informed decision about their home financing options.
Understanding Product Transfers
What is a product transfer?
A mortgage product transfer allows homeowners to change their current mortgage product to a new one with the same lender. This option becomes available when the current mortgage deal is nearing its end or when borrowers wish to lend more money using their house as security. It’s a popular choice for those looking to extend or refurbish their homes. Additionally, homeowners may opt for a product transfer to switch from a Standard Variable Rate mortgage to a fixed rate, tracker, or discounted rate mortgage, especially if interest rates have increased.
How it differs from remortgaging
Unlike remortgaging, a mortgage product transfer typically involves:
- Less paperwork
- Few to no fees
- No need for a new property valuation
- No legal work, eliminating solicitor costs
These advantages make product transfers a more straightforward process compared to remortgaging. Some lenders, including Newcastle Building Society, even offer preferential rates to existing customers looking to transfer to a new mortgage product, acknowledging customer loyalty.
When to consider a product transfer
Homeowners should consider a product transfer when:
- Their current mortgage deal is ending
- They want to borrow more money against their property
- They wish to switch from a variable rate to a fixed rate (or vice versa)
- Interest rates have changed significantly
When transferring to a new product, borrowers can opt to take out more than their current mortgage balance or original loan. However, lenders will assess affordability and consider various eligibility factors before approving additional lending.
Benefits of Switching with the Same Lender
Simplified Application Process
Switching mortgage deals with the same lender offers a streamlined experience. The lender already has the borrower’s details on file, making the process significantly quicker. While a full remortgage with a new lender can take weeks or even months, switching with the current lender can be completed in as little as a few days. This efficiency is particularly beneficial for homeowners looking to secure a new deal promptly.
Potential Cost Savings
Staying with the same lender can lead to substantial cost savings. Borrowers may avoid paying valuation fees, solicitor costs, and redemption fees. Additionally, if switching before the lock-in period ends, the current lender might waive early repayment charges (ERCs), which could amount to hundreds or thousands of pounds. However, it’s important to note that an arrangement fee may still apply.
Familiarity with Your Financial Situation
The existing lender has first-hand experience of the borrower’s repayment history, which can be advantageous. This familiarity often means that a credit check is not necessary, especially if the borrower has maintained a good payment record. As a result, the application is more likely to be approved without complications, providing peace of mind to the borrower.
Lenders value customer loyalty, with some offering preferential rates to existing customers for product transfers. This recognition of loyalty can translate to better deals and more tailored financial products over time. The convenience and potential benefits of switching with the same lender have made it an increasingly popular choice, with nearly two-thirds of borrowers likely to choose this option in the future.
Potential Drawbacks to Consider
Limited deal options
When homeowners choose to switch their mortgage deal with the same lender, they may find themselves facing a narrower range of choices. Lenders often offer a limited selection of products to existing customers, which can be more expensive than other options available in the market. This limitation means borrowers might miss out on potentially more attractive deals that new customers can access.
Missed opportunities for better rates
Staying with the current lender might result in homeowners overlooking better rates elsewhere. While some lenders reward customer loyalty with lower rates, others may offer higher rates to existing customers compared to new ones. By not exploring the entire market, borrowers could miss opportunities to secure more favorable interest rates or terms that could lead to significant savings over the life of the mortgage.
Lack of property revaluation
One significant drawback of switching with the same lender is the potential lack of a thorough property revaluation. Many lenders base their valuation on assumptions about the property’s worth without conducting a physical inspection. This approach can be disadvantageous, especially if the property has increased in value due to renovations or changes in the local real estate market. A more comprehensive valuation could result in a better loan-to-value (LTV) ratio, potentially unlocking access to more competitive mortgage rates.
Additionally, homeowners looking to refinance due to financial difficulties may encounter challenges with their existing lender. These lenders are often reluctant to make substantial changes to existing deals beyond offering a more attractive interest rate. This inflexibility can make it difficult to extend the loan period to reduce monthly payments or to shorten the term to pay off the mortgage early without incurring early repayment fees.
Steps to Switch Your Mortgage Deal
Review your current mortgage terms
Before initiating a product transfer, homeowners should carefully examine their existing mortgage terms. This includes checking the current interest rate, remaining loan balance, and any early repayment charges. Understanding these details helps in making an informed decision about switching.
Compare offers from your lender
Once familiar with the current terms, borrowers should review the product transfer options provided by their lender. It’s crucial to note that these options may be limited compared to the broader market. Lenders typically offer a range of deals, which may include fixed-rate, tracker, or discounted rate mortgages.
Negotiate and finalize the new deal
After comparing the available options, homeowners can negotiate with their lender for better terms. This step involves discussing the desired loan amount, interest rate, and any additional borrowing needs. If looking to borrow more, lenders will assess:
- The purpose of additional borrowing
- The new loan-to-value (LTV) ratio
- Current income and monthly expenses
- Credit record
It’s important to remember that while product transfers can be quick and straightforward, they may not always offer the best deal. Experts strongly advise speaking to a mortgage broker before committing to a new deal. A broker can search the entire market, potentially finding more favorable options that the current lender doesn’t offer. This step is crucial to ensure homeowners secure the most suitable and cost-effective mortgage deal for their circumstances.
Conclusion
Switching mortgage deals with the same lender has its pros and cons. The process can be a breeze, potentially saving time and money. However, it’s crucial to weigh these benefits against the chance of missing out on better deals elsewhere. Homeowners should take a good look at their current situation, compare offers, and maybe even chat with a mortgage broker to make sure they’re getting the best deal possible.
In the end, the decision to switch with the same lender depends on each homeowner’s unique circumstances. While it might be the right choice for some, others may find better options by exploring the wider market. What’s important is to do your homework, understand your options, and make a choice that aligns with your long-term financial goals. Remember, your mortgage is likely one of your biggest expenses, so it’s worth taking the time to get it right.
FAQs
What occurs if you choose to remortgage with your current lender?
Remortgaging with your existing lender typically incurs lower costs compared to switching to a new one. You may have to pay an arrangement fee, but you can often avoid valuation and legal fees. It’s advisable to discuss with your lender the possibility of waiving exit fees and to check on any early repayment charges.
Is there any benefit to changing mortgage lenders?
Switching mortgage lenders might allow you to reduce your loan amount and secure a lower interest rate. However, if you are in the middle of a fixed-term mortgage agreement, be prepared to pay a penalty for ending your current deal early.
Is it possible to switch mortgage providers without refinancing?
You can switch mortgage lenders without refinancing only before the closure of your home purchase. After this point, any change to a different lender would require refinancing.
What are the implications of changing your mortgage provider?
When you switch to a new mortgage provider, you will likely face several fees such as mortgage arrangement fees, also known as mortgage completion fees. Expect to pay legal fees, including a deeds release fee, and valuation fees for the new mortgage product. Additionally, you might have to pay an early repayment charge or exit fees to your previous lender.
