Mortgages: Product transfers VS Remortgaging

With 1,4 million mortgages due to come out of fix terms this year it is well worth getting to know what options might be available to you. Joel White, Ramsay and White’s MD looks at the differences, advantages and disadvantages of product transfers and remortgaging...

Remortgaging is essential for homeowners and investors that want to stay on the most competitive rates and term to meet their needs and circumstances.

But when the time comes to refinancing a property, is it best to stick with your current lender and switch to a different product or remortgage with a new provider?

In this guide, we look at the differences, advantages and disadvantages between a product transfer and a remortgage.

WHAT IS A REMORTGAGE?

Remortgaging is when you replace your existing mortgage with one from another lender. This is typically done if borrowers are:

• Coming to the end of an existing mortgage rate

• Looking for a better deal than the current lender can offer

• Planning to borrow more money against the property (often to carry out renovations, pay off debts or for further investments).

WHAT IS A PRODUCT TRANSFER?

A product transfer mortgage is a remortgage with your existing mortgage lender but involves switching to a new mortgage product, typically with a better interest rate where possible and a revised term. Product transfers are offered by lenders as a way to keep their clients rather than lose them to a different lender.

In the past, many borrowers would stay with a lender for years and years. But as competition has increased in recent years, homeowners now have more choices and can generally move from lender to lender quite easily – making remortgaging a popular choice for homeowners – especially if their circumstances have changed.

By offering product transfers, lenders can try and keep clients by offering them a more favourable product instead of going to another lender to remortgage.

Product transfers are typically used if the borrower’s circumstances have changed. For example, if you’ve moved from employment to becoming self-employed, or maybe something on your credit file means you can’t get a mortgage from another lender.

If you want to move house but are tied into a mortgage, you can simply port your current mortgage to a new property (provided the lender allows you to). Instead of paying early repayment charges, you can ‘port’ the existing mortgage to a new property. With a product transfer, the mortgage is for the same property –whether that be the home you live in or a property you rent out as a buy-to-let landlord.

WHAT ARE THE KEY DIFFERENCES?

RATES AND TERMS

With a product transfer, you stay with the same lender and just change your interest rate. For example, if your two-year fixed rate deal is coming to an end, you might want to look for a five-year fixed rate. This means the mortgage amount and term generally stay the same; you just change the rate with your current lender. Alternatively, with a remortgage, you might change your rate, your term and the mortgage amount – so there is a bit more flexibility.

THE PROCESS

A remortgage often requires more information than a product transfer because you are essentially a new customer to the lender, and they don’t know anything about you. While the criteria will vary from lender to lender, most will need to see your payslips and bank statements to assess your income and outgoings. They will also do a new credit check on you.

Conversely, as a product transfer is with your current lender, there’s no credit check, and the application process is a lot quicker. They know you have been paying your mortgage for years, so they will trust that you can continue to do so. This also means you won’t usually need to provide payslips and bank statements.

FEES

Generally, fees do apply for a remortgage and a product transfer, and these will vary from lender to lender. Choosing what’s best for you is a case of looking at what products are available, comparing the rates, fees and criteria and then weighing up whether it’s worth remortgaging or transferring to a different product with your current lender.

ADVANTAGES: REMORTGAGING

The main benefit of remortgaging is that it offers more flexibility. You can generally borrow more money and extend or shorten your term especially relevant in the current climate as rate have climbed considerably over the last six months.

ADVANTAGES: PRODUCT TRANSFER

A product transfer means you are just changing the interest rate, so there’s less documentation involved, meaning the process is completed quicker and easier.

SHOULD I REMORTGAGE OR TRANSFER?

Whether you choose to remortgage or transfer to a new product will depend on your circumstances.

Sometimes, a product transfer is the best thing to do – as it is generally quicker and easier than a remortgage and, in some cases, is your only option. But with a remortgage, you may be able to find a more favourable deal that makes your monthly payments lower thus increasing your cashflow – again very relevant in today’s higher interest environment.

It’s best to do your own research and also speak to an experienced mortgage advisor who can help you find the best solution.

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