Remortgage to Reduce Monthly Payments

What’s the difference between doing a product transfer with your lender and remortgaging with someone new?

A product transfer means selecting a new deal with your current lender. Remortgaging involves moving your loan to an entirely new financial institution.

Product transfers are fast and require no legal fees or new credit checks. They are ideal if your financial situation has worsened.

Remortgaging takes four to eight weeks and requires full affordability checks. This gives you access to the market, which may secure you a lower interest rate and greater long-term savings.

How soon before your fixed rate ends should you start looking at remortgage deals?

Ideally, you should start looking at remortgage deals three to six months before your current fixed rate ends. Mortgage offers are often valid for up to six months, allowing you to lock in a new rate early and protect yourself if interest rates rise.

This gives you plenty of time to complete your application and deal with the legal paperwork. You can then switch as soon as your current deal ends, helping you avoid moving onto your lender’s more expensive standard variable rate (SVR).

Can switching from a repayment mortgage to interest-only reduce your monthly payments?

Switching to an interest-only mortgage dramatically reduces your monthly payments because you only pay the interest on the loan rather than paying off the actual debt. However, your monthly payments do not reduce the principal balance at all, meaning you will still owe the exact same amount at the end of the term.

Because of this high risk, lenders have strict criteria for a permanent switch. They usually require a high income, substantial equity and an officially proven repayment vehicle to clear the debt later.

What fees are involved in remortgaging, and could they cancel out the monthly savings?

Upfront fees can entirely cancel out your monthly savings. This is especially true if you have a small mortgage balance or are only fixing for a short period.

Typical remortgage costs include lender arrangement fees, which are usually £999 to £2,000. Some lenders also charge booking fees between £99 and £250, alongside valuation and legal fees.

For example, if these combined costs total £1,500 and your new deal saves you only £50 a month, it will take you 30 months just to break even. If your new fixed term is only for two years, you will lose money by switching rather than saving.

Will your credit score affect the remortgage deals that are available to you?

Your credit score plays a major role in the mortgage rates, loan amounts and lenders available to you because it helps lenders assess the risk of lending to you.

A higher credit score can give you access to lower interest rates and a wider choice of mortgage deals.

A lower credit score may limit your options, with some borrowers only qualifying for subprime lenders that typically charge higher interest rates.

If you choose a product transfer with your existing lender instead of remortgaging, they may not carry out a full credit check or affordability assessment. This can make it easier to switch to a new deal, even if your credit score has worsened since you took out your current mortgage.

What happens to your payments if you don’t remortgage and roll onto your lender’s standard variable rate?

Your monthly payments will almost certainly jump significantly, because a lender’s standard variable rate is usually much higher than a fixed rate. Unlike a fixed deal, this variable rate can fluctuate at any time, whenever the lender decides to change it. It often tracks these shifts in the Bank of England base rate.

Moving onto the standard variable rate (SVR) gives you the freedom to leave or overpay without any penalty fees. However, the premium paid for this flexibility can make it an expensive option for long-term borrowing.

Summary:

Remortgaging is a great way to lower your monthly payments, whether you secure a better interest rate, extend your loan term, or switch to an interest-only structure. Our advisers always remind clients to carefully weigh up upfront fees and potential early repayment charges against your short-term savings to make sure switching is actually worth it.

We recommend starting your search three to six months before your current deal ends. This gives our team enough time to help you find the right deal and prevents you from accidentally rolling onto your lender’s expensive standard variable rate.

Key Points:

• You can lower your monthly payments by securing a lower interest rate, extending your loan term, paying down capital savings, or switching to an interest-only structure.
• Always check if upfront costs such as early repayment charges, lender fees and legal costs will cancel out your monthly savings.
• Start looking for a new deal three to six months before your current fixed rate ends to lock in a good rate early and avoid rolling onto the standard variable rate.
• Doing a product transfer with your current lender is fast and avoids new credit checks, while remortgaging with a new lender gives you access to better market rates.
• Extending your loan term or switching to interest-only lowers your monthly outgoings now, but you will pay much more interest over the long run.
• Your credit score heavily dictates the rates available to you and a poor score will limit your choices unless you stay with your current lender.

YOUR HOME / PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP TO DATE WITH YOUR MORTGAGE REPAYMENTS

There may be a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances but will range from £99 to £549 and this will be discussed and agreed with you at the earliest opportunity.

Asset Harbour Mortgages & Protection, trading as Asset Harbour Mortgages & Protection Ltd, is an appointed representative of HLPartnership Limited which is authorised and regulated by the Financial Conduct Authority.