Changing your mortgage
If you already have a mortgage, you may want to switch to a different mortgage or a different lender to get a better deal. This page also explains how to transfer your mortgage if you are moving home.
Why should I review my mortgage?
If you have come to the end of a special deal with your mortgage and will be going onto your bank's standard variable rate (SVR) you may want to switch to another mortgage. For example, you may have been tied into a fixed or capped rate for three years and the three years are now coming to an end.
Regardless of what stage you are at in your mortgage, you should get a statement from your lender every year telling you:
how much you have paid over the year and when
how much interest was charged over the year
the balance still owed at the date the statement was produced
the term remaining on the mortgage
the cost of paying off your mortgage, including any charges that you might incur
if there are any charges for early repayment and when these charges will no longer apply.
You can use this statement to review your mortgage and, if you are thinking about changing, to compare it with other types of mortgages.
When is changing worthwhile?
There are many different types of mortgages with different repayment options and ways of repaying the interest. You may want the security of knowing that your payments won't go above a certain level with a fixed rate or a capped rate, or you may want the flexibility to pay extra or take payment holidays.
You've come to the end of a special deal - if this is the case you'll most likely move to your lender's SVR, which can go up and down with interest rates. Consider if you can afford higher payments if interest rates go up.
There's been a change in your circumstances - you may find that your mortgage no longer suits your needs. For example, your income may have fallen or your family may have become larger. You might want to make sure your payments won't go up or you might look for a mortgage with lower monthly repayments. If your income has increased or you have come into some money, you may prefer a mortgage that allows you more flexibility to make extra payments without incurring a penalty.
You want to change a joint mortgage - if the number of owners changes, e.g. a joint owner is bought out after a relationship breaks down, then the mortgage will have to be changed as well.
Changing from interest only to repayment - if you are worried that your savings plan won't be enough to repay the capital, you may be able to switch to a repayment mortgage without having to cash in your savings plan.
Interest rates have changed - if you took out a mortgage when interest rates were high and they have now come down, you may be able to switch to a mortgage which takes advantage of the lower rates and allows you ultimately to pay back less. On the other hand, if you took out a mortgage that tracks interest rates and it looks as if rates are on their way up, you may want to tie yourself in to a mortgage with a fixed or capped rate, so your repayments aren't too expensive.
You need some cash - if the value of your home has increased since you bought it, you may be able to release some of the equity. The equity is the difference between the amount of your mortgage and the new value. For example if your home is worth £100,000 and you took out a mortgage for £75,000, you could take out a new mortgage for £85,000 and have £10,000 to spend. It's important that you check that you can afford the repayments if you are increasing your mortgage.
You want lower monthly payments - it may be worthwhile to see you can reduce your repayments if they are too expensive. You can do this by switching to a mortgage with a lower interest rate or extending the term of your mortgage, although this will depend on how close you are to retirement age.
Can I switch to another mortgage deal?
You may be able to save money by switching to a different scheme with your existing lender. Many lenders have more competitive schemes than they did a few years ago - you won't know unless you ask.
Can I switch to another lender?
You may be able to transfer your mortgage to a lender offering more competitive deals. You are more likely to have to pay any mortgage penalties if you do this, especially if you have only had your mortgage for a few years, but it may work out cheaper in the long run. Shop around before you decide.
Will I have to pay any penalties?
Before switching, you should check your mortgage agreement to see whether you would have to pay redemption fees. These penalty charges could be expensive (up to 4% of the outstanding amount you owe). It's also advisable to get independent financial advice before you decide to make any changes to your mortgage arrangements. However, if you want to switch to a new deal with the same lender, you may be able to negotiate over the penalties.
You may find that even if there are penalties, they may be balanced out by lower monthly payments. Do your calculations carefully.
If a lender overcharges you when you change your mortgage, it's now possible to get the money back. The Money Saving Expert website has a step-by step guide to claiming back unfair fees for switching your mortgage.
How do I go about switching my mortgage?
First of all, you need to find out from your lender whether there are any fees or penalties for paying off your mortgage early or switching to a new deal. You can then start looking at other mortgages to see whether it's worth switching. Most lenders will charge an arrangement fee, and you may also have to pay solicitor's and valuer's fees, so make sure you include these costs when working out how much you'll save.
The Which? Mortgage Guide has lots of information about switching mortgages, and also lets you compare different deals and find out how much you will save.
Can I change the term of my mortgage?
Mortgages don't have to be for 25 years. If you can afford to pay more each month, you could cut the term, and end up saving a lot of money in interest. Most lenders won't charge for shortening the term.
Alternatively, you could reduce your monthly payments by extending the term. This will give you a longer period of time to pay back your loan, so your monthly payments will be smaller.
Can I pay extra?
If you do have cash to spare, it may be better to pay off some of your mortgage than put the money in a savings account, especially when interest rates are low. However, you may want to keep enough ready cash for emergencies, such as expensive repairs. You may be able to choose to pay extra each month, or through a lump sum once a year. Check whether your lender calculates interest by the day or the month - if it's calculated monthly, paying a lump sum once a year may be a better option. You should also ask if any penalty charges will be involved.
What if I'm selling one home to buy another?
When you sell one home and buy another home, you don't necessarily have to start all over again with a new 25 year mortgage term. If your lender agrees, you can simply arrange for the mortgage on the new property to have the same mortgage term end date as on your previous home. This will be particularly useful if you have an endowment or ISA mortgage. Of course, if the loan on the new property is bigger, your monthly payments will increase.
If property prices have fallen since you bought your last home, there is a risk that selling it might not make enough to pay off the amount you owe the lender. This is called being in negative equity. Find out more about dealing with negative equity on the National Debtline website.
Changing the names on a joint mortgage
If you own your home with someone else and the joint ownership arrangement comes to an end, it's really important to make sure that the mortgage is changed to reflect the new situation.
If you are no longer a joint owner make sure that your name is taken off the mortgage. Until the mortgage is changed, you will remain jointly liable for the mortgage debt. This means that you will still have a legal obligation to pay back the money, even if you are no longer living in the home. If you are going to be the sole owner, the other joint owners will want their name taken off the mortgage for the same reasons.
If you need to change your joint mortgage, you can either:
cancel the existing mortgage (this is called 'discharging the mortgage') and take out a new one in the name of the new owner or owners, or
change the existing mortgage to show the new owners only (this is called 'varying the mortgage').
Your mortgage lender will have to agree to the changes. If you are to be the only owner, you'll have to make sure you can afford the mortgage yourself as well as considering some other factors.
Last updated: 29 December 2014
Housing laws differ between Scotland and England.
This content applies to Scotland only.