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14 Dec 2019

Remortgaging at Christmas: how to avoid paying an extra £100 in interest

Planning ahead could help you secure a better rate when remortgaging

Homeowners whose fixed-rate mortgages expire over the festive period could face paying more than £100 extra in interest, even if they switch their deals on time.

Research byMoneySavingExpert found that borrowers who remortgage at Christmas can end up paying their lender's standard variable rate (SVR) for several days.

Here, we explain how to get ahead of the game when it comes to remortgaging, and offer advice on how you can find the cheapest deals.

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The nightmare before Christmas

MoneySavingExpert says that Christmas switchers could be forced to pay out extra when moving their mortgage.

It says this is due to new mortgages only officially commencing the working day after the current deals expires, a problem that's especially acute at Christmas due to several bank holidays.

For the days in between the two fixed deals, borrowers could end up paying the more expensive standard variable rate.

The table below shows how much the SVR could end up costing you per day:

Mortgage sizeDaily interest in fixed period (1.29%)Daily interest on SVR (4.99%)Extra cost per day

MoneySavingExpert says this means a borrower with a £350,000 mortgage could pay a total of £70.98 more in interest if their loan expires on Christmas Eve, as the new loan won't be processed until the day after Boxing Day.

For somebody with a £650,000 mortgage, that figure rises to £131.78.

Should you remortgage with the same lender?

This extra cost only applies if you're switching lender, as if you remortgage with the same bank (known as a product transfer), the switch will be instant.

There are pros and cons to staying put. Switching with your current bank will be quicker, and you might not need to undergo a full credit check (though this varies between banks).

The big drawback is that there's no guarantee your current bank will offer the best rate, especially given the fierce competition in the mortgage market.

Lenders aren't very forthcoming about whether they offer better deals to existing customers, instead preferring to keep their retention policies a closely guarded secret.

How to get ahead of the game when remortgaging

The best way to get a good deal when remortgaging is to do your research well in advance.

Many lenders will let you lock in a new rate six months before your current one expires, giving you plenty of time to find the right product.

Securing a new deal ahead of time can be a good option when rates are very low, as is currently the case.

Your current lender may wait until a couple of months before the end of your deal to write to you, but there's no reason why you can't push for a quote much earlier.

Remortgaging your home: step by step

  1. Decide which mortgage term is best for your circumstances (more on this below) and start researching your options six months in advance. Consider whether rates are likely to change significantly before your deal expires.
  2. Arm yourself with the a list of the best rates at your loan-to-value level. You can do this by using a price comparison website or by enlisting the help of a mortgage broker.
  3. Contact your current lender to find out whether it can offer you a competitive deal.
  4. Once you've found a suitable product, read the small print and take note of any up-front fees or early repayment charges before signing anything.

How long should you fix your mortgage for?

TermSummaryGood forNot suitable for
Two-yearCheap rates but less long-term security. Vulnerable to base rate changes.First-time buyers and homeowners who might want to move in the short term. Borrowers who are willing to regularly negotiate for the cheapest deal.Homeowners who plan on staying put for longer. Borrowers who don't want the hassle of switching regularly.
Five-yearRates have fallen considerably in 2019. Early repayment charges can be very expensive.People who like the security of having their monthly repayments set in stone and aren't planning on moving. Those who don't want to gamble on the mortgage market.Homeowners planning to move in the next five years. People who want to be on the cheapest possible rate at all times.
10-yearRates are dropping but fixing for a decade isn't suitable for all borrowers.People living in their 'forever' home or with 10 or 15 years left on their current mortgage. Risk-averse remortgagers.People planning to move home in the short or medium-term. Homeowners with less than 10 or 15-years left on their mortgage.

Should you use a mortgage broker?

If you'd like some help finding the right mortgage deal, it can be a good idea to take advice from a whole-of-market mortgage broker.

A broker will be able to assess all of the deals currently available and take your financial circumstances into account to find you the right one.

At time of writing, 1,539 of the 3,217 remortgaging products on the market are only available through brokers, but there are also some deals you can only access by approaching a lender yourself.

A good broker should inform you if the best product for you is only available directly from a lender.

For more tips, take a look at our guide on how to find the best mortgage deals.

Best mortgage rates for switchers

The good news for people looking to remortgage is that rates have dropped over the course of the year, resulting in both two and five-year fixes hitting 12-month lows in December.

Longer-term deals are falling in cost more quickly. The average five-year rate fell by 0.2% in 2019, compared with an average drop of just 0.08% for two-year fixes.

The interactive chart below shows the best initial rates currently available at five popular loan-to-value (LTV) levels.

Simply hover over a bar in the chart below to find out the initial rate and the lender offering the cheapest product.

Advice on remortgaging