Got a mortgage rate locked in that hasn't started yet? Check now if you can get a cheaper one
If you've secured a mortgage rate, but that deal hasn't yet started, it's worth checking now if you can get a cheaper rate, as many offered on new mortgages are now lower than they have been in the last few weeks. Most lenders won't charge you a fee to cancel, and a cheaper deal could save you £100s.
Just a month ago, the cheapest two-year fixed-rate mortgage was 5.6%, now it's 5.07%. The repayment difference between these interest rates would mean a saving of £47 a month, or £560 a year.
Yet you could have to pay fees to ditch a deal you've booked. So, don't ditch your current deal without doing the research first – or speaking to a broker, especially if they helped you with your recent mortgage deal. Here's what you should consider:
1. Check if the rate on your new mortgage deal has started yet
Most lenders let you lock in a fixed mortgage deal months in advance – something that's been popular recently as interest rates have been on the rise. But as rates come down, we're hearing that lenders are receiving a growing number of requests to cancel these more expensive deals. Yet the first thing to do is to check if your new mortgage rate has started yet...
If your new deal has already started, you'll almost certainly be charged to cancel
Where the deal you secured in advance has already completed – in other words, the new rate has now taken effect – you will almost certainly have to pay what's known as an 'early repayment charge' to ditch it, potentially costing £1,000s (see our Remortgage fees guide for how these work).
In this situation, it's very unlikely to be worth switching right now, unless you find a deal with a seriously better rate than what you're currently on (use our Ditch your fix calculator to check the maths).
If your new mortgage rate hasn't started yet, it's likely you can cancel penalty-free
If you've been able to find a cheaper mortgage deal, then provided your new rate hasn't taken effect, in the majority of cases you should be able to ditch it without paying a penalty. That's because you're unlikely to have yet paid the main – and often, only – fee associated with locking in a new rate (known as the arrangement fee), as most borrowers simply opt to add this to their mortgage.
Yet a few will face fees. Check if you've paid, or will need to pay, any of the following:
- A booking fee. This is a smaller, albeit rare, fee paid up front to secure a rate – and if you have paid this, then you're unlikely to get a refund. These fees tend to be around £200 or so.
- Legal fees. You're unlikely to have paid these if you did a product transfer (changing deal but sticking with the same lender) but more likely to have been charged if you remortgaged (changing deal and switching lender).
One silver lining here is that even where you have paid legal fees, you're unlikely to need to do so again even if you do switch deal, given any legal work already carried out by your solicitor would likely be required by your new lender as well. If you are charged extra, it'll likely be a small amount in the low £100s, so be sure to ask.
- An unlikely, but possible arrangement fee penalty. Switching may be more complicated if you're ditching a product transfer with your existing lender in favour of a remortgage elsewhere. According to Ray Boulger, of mortgage broker John Charcol, most major lenders do let you do this for free, but some smaller, specialist lenders might levy a charge – normally the equivalent of the arrangement fee, which can total £1,000+. Check with your lender if it'll charge this, as if it does, it's unlikely to make switching worth it.
Once you know whether you've any fees to pay to cancel your new mortgage, you can work out in step two below whether a new deal will save you more.
2. Work out how much you'll save by switching
Now you know how much you'll pay in fees (if anything) to cancel the deal you've secured, you need to establish if ditching is going to be worth it for you.
Be careful here as a lower rate doesn't necessarily mean a cheaper deal, for example, where a cheap rate comes with an expensive arrangement fee.
And where you will be left out of pocket for ditching your current rate, it's not simply a matter of finding a cheaper deal. Rather, the new deal will need to help you save at least the amount you would pay as a penalty for switching.
Use our Compare two mortgages calculator to see the difference between the two mortgages, including fees.
3. Talk to a broker to make sure switching is right for you
Unless you know exactly what you're doing when it comes to mortgages, it's always best to talk through your options with a mortgage broker before taking any action. If a broker helped you arrange your new mortgage recently, go back to them. If you didn't use a broker, or they weren't helpful, see our Cheap mortgage finding guide for tips on finding a good broker.
Mortgage switch help – what you need to do
Full details are in our free 62-page PDF Remortgage guide (there's also our free 53-page First-time buyers' guide), but in brief...
- Benchmark what type of rates are out there. Our Mortgage Comparison tool will help you see what's available currently and compare it against what you're paying now.
- Dig out the details of your current mortgage. Such as... What's the rate? What type is it? When's the intro deal over? When must it all be repaid? Will you be penalised to switch deals? What's the loan-to-value (LTV)?
- Check out your existing lender's cheapest deal (product transfer). Use this rate as a benchmark to beat.
- If you've savings, use them to bag a cheaper deal. If you still owe more than 60% of your home's value on a mortgage, the more you can do to drop an LTV band, the cheaper your remortgage will be.
- Check out the size of any possible savings on our mortgage calculators. Stick your digits in here... Basic mortgage calculator – including what it'll cost | Compare two mortgages | Compare fixed-rate mortgages | 'How much can I borrow?' guesstimator.
- If you're thinking of applying, it's all about whether you'll be accepted. Lenders need to check if you're 'affordable' and whether you could meet repayments if rates shot up. So see our 17 ways to boost your mortgage chances, and don't forget to check your credit report for free. Then read up on how to improve your creditworthiness.
- If you're serious, speak to a broker – they're currently more important than ever. See our full help on how to find a good broker.
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