Remortgaging and product transfers are not the same. What’s the difference and which one is likely to be best for you? It depends on your situation. Here’s a quick guide.
If your fixed-rate mortgage deal is coming to an end soon, you may be thinking of remortgaging, but you might have also heard the term product transfer. So, what’s the difference between the two and which one is right for you?
What is remortgaging?
Remortgaging means moving your existing mortgage to a new lender, either to secure a more competitive interest rate or to borrow more money for home improvements. Other reasons why people remortgage include paying off a considerable chunk of their mortgage (if their current deal doesn’t allow them to do so) or if they have recently separated from their partner and want to remove them from the mortgage.
With a remortgage, you can shop around and choose from various mortgage loans from different lenders, with a view to securing the best interest rate.
What is a product transfer?
A product transfer means staying with the same lender and securing a new rate. You might do this if you are coming to the end of a fixed-rate deal very soon and are about to be placed on your lender’s standard variable rate. You don’t normally need to provide proof of income and the lender wouldn’t normally do further credit checks.
You can’t borrow extra funds and can only swap the balance of your mortgage onto a new product. As you’re staying with the same lender, you’ll be restricted by what they can offer, rather than choosing from multiple lenders. ‘When carrying out a product transfer there can be no “material change” to the mortgage,’ says MB Associates’ Sales Manager Phil Leivesley. ‘In essence, you’re simply choosing a new initial rate.’
With a product transfer, you have to accept your current lender’s assessment of the valuation of your property. This is often a data-driven figure, similar to Zoopla, and might not be reflective of the actual value. ‘This is particularly the case if a borrower has extended or improved their property,’ says Phil. ‘If the same borrower were to then perform a product transfer the lender might deem them to be borrowing at a higher loan-to-value than they actually are and therefore they might be given a more expensive product than they could get elsewhere. Very few lenders allow an existing borrower to challenge the valuation.’
Speed versus choice
‘The big difference between a remortgage and a product transfer is the need for a conveyancing solicitor when carrying out a remortgage,’ says Phil. ‘More often than not there is very little for a solicitor to do, particularly if the property is freehold.’
Phil adds: ‘The solicitor will send out a questionnaire to ascertain some details about the property, the current mortgage, and the proposed new mortgage and, once received, their role is to ensure there are sufficient funds in place to redeem the previous mortgage. More often than not, the cost of the solicitor is either covered by the new lender, or they’ll provide cashback to contribute towards the cost of the work.’
It’s possible that you could save money by remortgaging, as you will have more choice and therefore could secure a lower rate. However, bear in mind with a product transfer that you won’t be able to borrow more capital. If you want to add a partner to your mortgage, this can’t be done on a product transfer. You would need to remortgage.
As you can see, choosing which of the two options is best for you purely depends on your personal circumstances.
If you’re not looking to borrow more money, and you want to keep things simple, a product transfer may be a good option.
However, if you want to borrow more money or you’re determined to secure the lowest possible interest rate, and you don’t mind the process taking a bit longer, remortgaging may be the best solution.
A good broker can advise you on the best course of action for you and whether they think they can find you a better deal by remortgaging, or whether you can still get the most competitive rate by staying with the same lender.
Feel free to contact us for advice on remortgaging or product transfers.