Taking out a mortgage is a significant long-term commitment, but it is important to periodically review your mortgage product throughout the term. As a contractor, it can be a little trickier when it comes to remortgaging and therefore it is always advisable to engage with a specialist contractor mortgage broker.
A common question that arises is whether it is better to switch mortgage providers and remortgage or accept a new product from your current lender. In this blog, we will examine the advantages and disadvantages of each approach.
Staying with your current lender involves obtaining a new product from the same lender, which is known as a rate switch or product transfer. Alternatively, you can opt for a full remortgage with a different lender.
There are various reasons why contractors choose to switch mortgage providers. The most common reason is to secure a more competitive interest rate on a new product. When interest rates are on the rise, borrowers often want to move from their lender’s standard variable rate to a fixed rate deal.
Additionally, some contractors remortgage to release capital, others do so when they move house, and some are seeking lower loan-to-value borrowing to obtain a better rate. Furthermore, many mortgage providers now offer greater flexibility in repayments, allowing borrowers to make overpayments without incurring penaltie.
These are all valid considerations when contemplating a change in mortgage providers. While switching mortgage providers may result in a better deal, there is no guarantee shopping around and changing lenders will make your mortgage more affordable or improve your financial situation. It is crucial to carefully assess your new mortgage repayments to ensure that it is the right move for you.
The main advantages of using a new lender include the possibility of obtaining a lower mortgage rate and better mortgage terms, such as a reduced exit fee or an increased loan-to-value ratio at a more favourable rate.
To switch mortgage providers, you will need to find a suitable new product, have your mortgage application approved, and pay off your existing lender. This process involves a comprehensive application, income verification, surveys, and legal work.
If your financial circumstances have significantly changed since you initially obtained your mortgage, you may find that you cannot switch mortgage providers because you no longer meet the affordability criteria. In such cases, you will need to remain with your current lender.
Your existing lender may be able to offer you a product transfer, allowing you to take advantage of a new interest rate, potentially reducing your monthly repayments without the need for a reassessment of your situation.
When deciding whether it is worth switching mortgage providers as a contractor, it is essential to consider all the associated costs, not just the interest rate and monthly mortgage payments. There are additional expenses involved when switching lenders. A new mortgage provider typically charges mortgage arrangement fees, also known as mortgage completion fees.
Additionally, there could be legal fees, including a deeds release fee, as well as valuation fees for the new product although in most instances the new lender will cover these costs for you. You may also incur early repayment charges or exit fees from your current lender. It is only by considering all these switching costs that you can make an informed decision about your new mortgage product.
Staying with your current lender has advantages, including potential savings on valuation fees and checks as you are considered a lower-risk borrower. Additionally, staying with your current lender may save you time, as the process of switching products is relatively quick.
At My Contractor Broker, we have over 15 years of experience helping contractors find competitive deals when switching mortgages. From identifying the best mortgage rates with your current provider to searching the market for a new lender, as well as assisting with the compilation of your legal paperwork, we are here to facilitate a smooth transition of your mortgage within a timeframe of up to eight weeks.
For more information on remortgaging, please refer to our blog.
Frequently asked questions about choosing between remortgaging and switching mortgage lenders: –
Can I remortgage to change my mortgage term?
Yes, it is possible to adjust your mortgage term with your current lender, eliminating the need to switch to a new lender and incur additional expenses.
When is it not advisable to switch mortgage providers?
If your early repayment charges are substantial, it may not be financially prudent to switch. Similarly, if the value of your property has decreased, you may be placed in a higher loan-to-value bracket, which could limit your access to the best fixed-rate deals. Lastly, if your outstanding mortgage balance is relatively small the costs involved may outweigh the benefits of switching.
Do I need a solicitor to remortgage with the same lender?
No, if you are staying with the same lender and transferring products, you will not require a solicitor.
Will I need a credit check if I am remortgaging with my existing lender?
If you have maintained a good repayment record on your current mortgage deal, it is less likely that your provider will require a new credit check. This can be advantageous if you are concerned about passing affordability checks due to a reduction in income or increased day-to-day expenses.
Do I need a mortgage broker to remortgage with my existing provider?
No, you can approach your lender directly to transfer products. However, if you are considering switching mortgage deals to improve your situation, a mortgage broker can provide valuable assistance.
What next?
The My Contractor Broker team are on hand to conduct a thorough review of all the options available to you. There is no cost involved in reviewing the market so what do you have to lose? Call the team on 02394 211122 or use or mortgage calculator to find out how much you could borrow based in your contractor status.