Remortgage vs product switch: What’s the difference? And which one should you choose?

Remortgage vs product switch: What’s the difference? And which one should you choose?

Historically, mortgages were something we took out when we bought a house and then didn’t think about again until we moved home. But in the current cost-of-living-climate, not a week goes by without seeing the term ‘mortgage’ making headlines. 

As of August 2023, borrowing costs are now at their highest for 15 years. This comes after the Bank of England increased the base rate for the 14th consecutive time — from 5% to 5.25%. 

For the lucky few, this might not mean much. But for homeowners whose fixed-rate mortgage deal is coming to an end in the next 6 months, now really is the time to put your thinking cap on and make an informed decision. 

 

Spring into action 

“If you do nothing when your fixed rate deal expires, then your lender will start to charge you interest at their standard variable rate (SVR),” mortgage adviser Jo Jingree explains. 

“Which is likely to be more expensive than your existing deal, meaning your monthly repayments could rise,” Jo adds. “At a time when every penny earned is a penny saved, the time to act is now.”

 

So, what are your options? 

If you’re a homeowner coming to the end of a fixed rate deal and you want to avoid rolling onto your lender’s SVR, you could either remortgage or product switch. 

 

Remind me again, what’s a remortgage?

Remortgaging is nothing new. But in essence, the phrase refers to when you apply for a new mortgage with a different lender but stay in your existing property. 

The term of a mortgage is the length of time that you pay back your mortgage. But the rate you agree to pay (and therefore your monthly repayments) is usually only put in place for 2, 3 or 5 years. This is your ‘deal’. When you remortgage you are essentially taking out another ‘deal’.

 

What’s the benefits of remortgaging?

The benefit of a full remortgage is that you have access to the most competitive interest rates for you and your current financial circumstances. It also means: 

  • You’ll avoid your lender’s SVR, which, as we’ve said, is typically higher than a fixed or tracker mortgage deal. 
  • You may be able to release some equity in your home to provide additional cash if you want to consider some home improvements, consolidate loans or perhaps pay for school or university fees.
  • In some cases, you might be able to reduce your monthly repayments – something we could all do with! This could be because you have a lump sum you are able to put down.
  • In some cases, you might also be able to reduce your overall mortgage term meaning you’ll pay off the loan quicker and pay less interest in the long run — which is always a win!

So what’s a product switch?

Sometimes called a product transfer, a product switch is when you switch your mortgage onto a new deal with your current lender. 

 

What are the benefits of a product switch?

“Unlike a full remortgage, a product switch doesn’t offer you as much flexibility ,” Jo explains. “However, it does come with its benefits as it can be a quick way to secure a new deal on your mortgage.”

Other benefits include: 

  • Usually, a product switch is not assessed in the same way as a complete remortgage with a different lender. This makes the process quicker than doing a full remortgage and can be suitable for those whose circumstances have changed since they last took out a  mortgage deal. 
  • It stops you from rolling onto your lender’s SVR. This also means you’ll know how much money you are paying out each month.
  • In some cases, a product switch might give you access to a better interest rate and a revised term. But this will depend on you and your lender. 

 

The bottom line 

Despite what you might think, remortgaging is nothing to be scared of and neither is a product switch — even in these challenging times. “The worst thing you can do is nothing,” Jo says. 

But if you’re left wondering which way to turn, we would suggest getting in touch with an impartial mortgage adviser. Impartial mortgage advisers can source mortgage deals available across the whole UK market. And this applies to those who might have got their current mortgage directly from their bank. 

Jo has been working in the industry since 2000 and offers a 30-minute no-obligation phone call. So do reach out

 

There may be a fee for mortgage advice. The precise amount will depend upon your circumstances, but we estimate it will be £399. Your home may be repossessed if you do not keep up repayments on your mortgage.

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