There are no fixed rules regarding how often you can change your mortgage deal. It will depend on factors such as age, your financial and credit history, and what offers are available. Older homeowners seeking new mortgage deals may face additional challenges. However, there are alternatives, such as lifetime mortgages and home reversion schemes.
How often should I change my mortgage?
Likewise, nothing is set in stone regarding how often you should change your mortgage. Some will switch to a better rate, while others will look for alternatives before reverting to a standard variable rate. However, there are several issues to take into consideration.
Fees
Homeowners looking for a new mortgage arrangement may need to pay many different fees. For example, exit, arrangement, legal, and valuation fees may exist. These are all expenses you need to consider when calculating the potential benefits of switching.
Introductory mortgage rate
You may change your mortgage for many reasons, but an attractive introductory mortgage rate is the most common. It is essential to look at the mortgage rate in conjunction with the fees and the term of the introductory offer.
Equity in property
The amount of equity you have in your home will be a significant consideration when looking to change your mortgage. If you have little or no equity in your property, you will struggle to find an alternative. On the other hand, having relatively high equity will put you in a solid position to negotiate an attractive rate.
Household income
Your income might have changed over the years. If your income has fallen or could fall in the future, you may find getting a reasonable mortgage rate more challenging. However, you may also want to consider changing your mortgage deal for this reason.
Will switching mortgages affect my credit rating?
In the short term, you may see a dip in your credit rating if you switch mortgages. However, in the medium to longer term, you should see a recovery if you maintain regular repayments. One of the concepts behind the credit rating system is consistency. If you continually switch personal loans, mortgages, and other financial arrangements, this might have a detrimental impact on your credit rating.
Each time you make a formal mortgage application, the lender will carry out what is known as a “hard credit check”. This process allows the lender to see all the financial information on your credit file. If you were to make a tentative mortgage application, your lender would likely carry out a "soft credit check". When it comes to your credit rating, a hard credit check could potentially have a detrimental impact. Soft credit checks are noted on your file but not visible to any third parties, so any effect would be negligible.
Should I fix my mortgage for 2 or 5 years?
When looking to fix your mortgage rate, you will likely come across fixed-rate deals of between two years and five years. On occasion, you may be able to negotiate a longer fixed rate, but this area of the market is not as competitive. So, the question is, should you fix your mortgage rate for two or five years?
Why should you consider a two-year fixed-rate mortgage?
There are numerous factors to consider when looking at a two-year fixed-rate mortgage.
Personal finances
If you expect your finances to improve in the short term, you may be able to negotiate an improved rate after the two years. For example, you might be expecting to receive a lump sum which you could use to reduce your mortgage capital. Consequently, on a lower Loan to Value (LTV) ratio, you may be able to negotiate a better deal. The LTV ratio is mortgage debt reflected as a percentage of the value of your home. Hence, the lower the LTV, the greater the asset cover, and the lower the risk to the lender.
Outlook for interest rates
This subject is not as straightforward as it may seem. The only interest rate you can be sure of is the rate you have before you today. Experts may predict further declines in UK interest rates, but there are no certainties. We might also get to a point where mortgage rates won’t follow falls in base rates, for example, if they were to turn negative.
Why should you consider a five-year fixed-rate mortgage?
The UK mortgage market is highly competitive, and lenders may offer outstanding mortgage deals from time to time. Consequently, there may be many reasons why you would consider a five-year fixed-rate mortgage.
Stability
If you can lock in a five-year mortgage on a fixed rate, you know your outgoings for the next five years. Even if this rate is slightly higher than the two-year fixed rate, stability is crucial for many people. In addition, if you had surplus funds available in the future, you could make additional repayments against the mortgage capital.
Interest rates
Experts will have different opinions on the direction of UK base rates, which influence mortgage rates. When looking at the five-year rate, it is also worth considering the standard variable rate. If there is a significant difference, it may well be worth considering an extended fixed-rate term.
Is my mortgage worth changing?
While there are many scenarios where you might look to change your mortgage, there are two main reasons.
Financial benefit
There are numerous potential financial benefits when switching mortgages. First, we have the basic differential between your current mortgage rate and the rate on offer. There is also the potential to reduce your mortgage payments by remortgaging on a lower LTV. The lower your LTV, the lower the risk to the mortgage provider; hence, you should attract a better rate.
Fixed-term coming to an end
The majority of fixed-rate mortgage terms are between two years and five years. It makes sense to review your mortgage as you approach the end of your fixed term, facing a potential switch to a higher standard variable rate. You may find that your current mortgage provider is offering other attractive mortgage deals, and you may be able to switch. Alternatively, there may be more attractive rates on offer from other mortgage providers.
Can I change my mortgage after two years?
Nothing is stopping you from changing your mortgage after two years. However, you may face credit rating issues if you regularly switch mortgages. Each new mortgage application has the potential to reduce your credit rating. However, if you keep up-to-date with your repayments, this should recover. It is sensible to take advice about the pros and cons of continually switching your mortgage.
Alternative mortgage deals
As we touched on above, there may be some situations where you cannot remortgage because of a change in your income. This could be the case as you close in on your retirement and might have to rely only on your pension income. However, for those aged 50 and over, there are two alternatives which are:
Home reversion schemes
It is imperative you take advice if considering a home reversion scheme. In effect, you will be selling part of your home, to a third-party investor, at a discount to the market price. There are pros and cons, such as you would live rent-free until you moved into full-time care or died. However, there may be restrictions if you were looking to move home in the future. When your property is sold, the third-party investor would receive their appropriate share of proceeds.
Lifetime mortgages
When you take a lifetime mortgage, you are remortgaging part of your property, with the LTV unlikely to be above 50%. You also won't have any monthly repayments. Instead, interest payments are rolled up and repaid at the same time as the capital. The property will be sold upon your death or move into full-time care. At this point, the lifetime mortgage (plus rolled-up interest) is repaid, and the balance is returned to you or your estate.
How often can I change my mortgage deal?
It makes sense to keep abreast of changes in the mortgage market. You will, from time to time, spot attractive headline interest rates. However, they must be considered together with other issues such as fees. Continually switching between mortgages is often frowned upon by credit rating agencies. But so long as you maintain your repayments, there should be no lasting damage. When looking at a new mortgage, it is crucial to take financial advice. This ensures that an overall package can be shaped around your particular needs.
