Switch Your Mortgage Today

Switch your mortgage today
Having taken out a​ mortgage,​ you​ are not locked into that particular loan for the​ full mortgage term .​
Lenders compete fiercely for your custom and you​ may be able to​ reduce the​ cost of​ your mortgage by switching to​ a​ new lender .​
Against this you​ must set the​ costs of​ making the​ switch .​
These might include: valuation,​ legal and land registry fees; arrangement fee and mortgage indemnity insurance premium charged by the​ new lender; discharge fee,​ deeds fee and any early redemption charge levied by the​ old lender .​
The costs can easily come to​ £1,​000 or​ more,​ but the​ savings can be substantial too .​
For example,​ each 1 per cent cut in​ the​ mortgage rate on​ a​ 25-year £50,​000 loan could save you​ around £360 in​ interest each year .​
Although this is​ not widely advertised,​ rather than losing you​ to​ another lender,​ your existing mortgage lender might be willing to​ give you​ a​ better deal: for example,​ by extending to​ you​ discounted rates normally available only to​ first-time buyers .​
It is​ certainly worth talking to​ your existing lender before going ahead with any switch,​ since it​ will cost you​ less to​ stay put.
If you​ are interested in​ switching mortgage,​ check what deals are currently on​ offer .​
Get quotes for the​ loans you​ are interested in,​ including the​ associated charges .​
Check what fees your existing lender might charge and check out whether your existing lender might be prepared to​ offer you​ a​ better deal than your current loan in​ order to​ keep your custom.
Bear in​ mind that switching mortgage counts as​ taking out a​ new loan,​ so you​ could be entitled to​ less help from the​ state if​ you​ ran into problems keeping up the​ payments.
Deciding how much to​ borrow
When you​ take out a​ mortgage,​ the​ amount you​ borrow is​ driven by three main factors:
·The price of​ the​ home you​ want to​ buy the​ amount you​ can borrow will generally restrict your choice of​ properties .​
But,​ often,​ if​ you​ need to​ live in​ a​ particular area – for work,​ say – there will also be a​ minimum amount you​ must borrow if​ you​ are to​ buy anything at​ all.
·The value of​ the​ home you​ buy the​ lender will have the​ property valued .​
Usually,​ they will not be prepared to​ lend you​ the​ full value of​ the​ property .​
Commonly,​ the​ maximum will be 90 per cent or​ 95 per cent of​ the​ property’s value – called a​ 90 per cent or​ 95 per cent loan-to-value (LTV) proportion .​
Bear in​ mind the​ value of​ the​ property for this purpose may be less than the​ price you​ required to​ pay for it.
·What you​ can afford to​ pay Lenders often work on​ the​ basis of​ crude income multiples .​
For example,​ you​ might be able to​ borrow three time your gross salary .​
If you​ are a​ couple,​ you​ might get,​ say,​ two-and-a-half times your joint salaries .​
But you​ should never take out the​ maximum loan offered unless you​ have worked out that this is​ an​ amount you​ can afford to​ pay.
What you​ can afford
Write down your monthly budget:
·Look at​ the​ money you​ have coming in​ each month – your pay after tax and other deductions,​ income from investments,​ any child benefit or​ other state benefits,​ maintenance payments from a​ former partner,​ and so on.
·Deduct your monthly expenses for,​ say,​ council tax,​ water,​ heating and lightening,​ food,​ travel to​ work,​ telephone,​ and so on​ .​
Apportion annual and quarterly bills as​ if​ they were spread out monthly .​
Do not include rent or​ current mortgage payments if​ these will be saved one you​ have bought your new home.
·In the​ first instance,​ deduct non-essential spending – for example on​ holidays,​ meals out,​ cinema trips and so on​ .​
But,​ if​ it​ looks unlikely that you​ can afford the​ size of​ mortgage you​ want,​ go back and consider what non-essential spending you​ could do without .​
Be realistic – you​ must not count on​ savings which in​ practice you​ will not really make.
·Deduct your total spending from your income to​ see how much you​ can afford to​ pay each month for a​ mortgage .​
If you​ plan to​ choose a​ variable-rate mortgage,​ bear in​ mind that your mortgage costs will increase if​ interest rates rise .​
Similarly,​ if​ you​ choose a​ discounted mortgage,​ make sure you​ have allowed for the​ increase in​ payments one the​ discount period has finished.

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