Should I switch my mortgage?

11 March2010

With average mortgage rates a fair bit lower than they have been in recent years, switching your existing mortgage deal to a cheaper one could save you a lot of money.

If you`re at the end of an existing mortgage deal and there are cheaper deals on offer, then it could make sense to get a new mortgage, rather than reverting to your lender`s SVR (Standard Variable Rate). However, there are a number of things you should think about when switching, and your decision will affect whether you end up saving money - or paying more - overall.

Fixed-rate, variable-rate or tracker?

One thing you`ll need to consider before you switch your mortgage is the type of deal you`re looking for.

Fixed-rate mortgage

Quite simply, this is a mortgage on which the rate stays the same for an agreed period. You`ll know exactly how much you`ll be paying each month, which can make it a lot easier to plan out your finances.

If the Bank of England`s base rate rises, it won`t affect you, because your rate is fixed - but if it falls (which is almost impossible, as it`s down at 0.5% today), you won`t benefit either.

Variable-rate mortgage

Your interest rate on this type of mortgage will vary depending on a number of things. It`s loosely linked to the Bank of England`s base rate, but other factors can also affect it, making variable-rate mortgages a little unpredictable.

In general, when the base rate falls, so will your variable rate, and if the base rate rises, so will your mortgage rate. As such, variable-rate mortgages are attractive when rates are low or falling (as we`ve seen over the past 18 months or so). Just remember that you could easily end up paying more if/when the base rate starts rising.

Tracker mortgage

A type of variable-rate mortgage in which the rate `tracks` at a certain level above the base rate. So if the base rate is 0.5% and your tracker rate is set at 2% higher than the base rate, you`ll pay 2.5% interest - but if the base rate rises to 1.5%, you`ll pay 3.5%.

All in all, you`ll have to decide if you prefer the security of a fixed-rate mortgage, or if you`d prefer to take your chances of a better rate on a variable-rate or tracker mortgage - and run the risk that the cost could rise.

If you`re unsure, a mortgage adviser could help you to decide. It`s an important decision - if you`re like most people, your mortgage is the biggest debt you`ll ever take on, and it`s vital you make sure you can afford your repayments or you run the risk of losing your home.

Are there any other charges?

Switching your mortgage deal is rarely free of charge. The deals with the best interest rates may come with the highest arrangement fees (although this isn`t always the case), and there may be other charges involved, as well as solicitors` fees.

These charges will add to the overall amount you pay. You may be able (if you can afford to) to pay them up front, but in some cases you`ll be given the option of adding them to your regular mortgage payments - driving up the monthly cost.

If you`re thinking about switching your mortgage and want to know more, call one of our mortgage advisers today on 0800 195 2913.

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