Switching mortgages

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 may save you money, and it may be possible to arrange temporary or long term changes. You should check your mortgage agreement to see whether you would have to pay redemption fees.

These penalty charges could be expensive (up to 5% of the outstanding amount you owe). Get independent financial advice before you make a decision to make any changes to your mortgage arrangements.

When changing may be worthwhile

Your reasons for wanting to change your mortgage will probably depend on your personal circumstances. You may want to do so because:

• you were tied into your existing mortgage for a number of years, but the fixed term has now ended and better deals are availabl,
• you want a more flexible mortgage which will allow you to pay extra or take payment holiday,
• you took out a fixed rate mortgage when interest rates were high and want to look for a lower rate now that interest rates have fallen,
• you are worried that your endowment policy won't produce a large enough lump sum to pay off the capital you borrowed,
• you are having problems affording your monthly payments.

Switch your 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 may want to switch all or part of your mortgage from an endowment to a repayment mortgage because you are worried that your mortgage won't be paid off at the end of its term. If you are in this situation, it may be worth making a complaint first - you may be entitled to compensation.

Switch your lender

You may be able to transfer your mortgage to a lender offering deals that are more competitive. You are more likely to have to pay redemption fees if you do this if you have only had your mortgage for a few years. However, it may work out cheaper in the long run. Shop around before you decide.

Change the term

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 money by paying less 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 to pay back your loan, so your monthly payments will be smaller. However, you will have to pay more interest.

Pay extra

If you 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 is calculated monthly, paying a lump sum once a year may be a better option. Ask if there will be any penalty charges involved if you pay extra.