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Mortgage Switching?

Is it worth remortgaging from one scheme to another? What should the total switching costs be?

A remortgage is when you transfer your current mortgage to a different policy, even if it's with the same lender, and you arent moving house. However, you might be charged a redemption fee from your existing lender: the new lender might well charge fees too, and there may be legal & stamp duty costs. All your costs, legal, administration and valuation to name but a few are called switching costs.

The only really viable reason for remortgaging is if the switching costs are low enough, basically the new mortgage deal has to be cheaper than the old mortgage package, including all the switching costs. Since switching cost differ greatly depending on mortgage lenders, this applet however calculates the Net Present Value or NPV of any improved cash flows resulting from the switch.

This program represents the cash flow as a single lump sum for the new mortgage details, if the result is a negative value, then it would only be worthwhile if there is a cashback deal in the remortgage.

Enter figure from your current scheme and also the terms of your new scheme. The NPV is shown in red. Compare this figure with the total anticipated switch costs in order to see if the switch is worthwhile. Note there is a difference between a repayment and an interest-only mortgage.

Current Scheme

Current loan outstanding £
Remaining months to the end of the term months
Current nominal interest rate % p.a.
Months before any changed rate applies months
Changed nominal interest rate % p.a.

New Scheme

New scheme nominal interest rate % p.a.
Months before any changed rate applies months
Changed nominal interest rate % p.a.
Expected life of new mortgage scheme months
   
  mortgages

Answer:  
Break even switch costs (i.e. NPV of improved cash flows) £ Interest only (2.39% of loan)
£ Repayment (2.35% of loan)

NOTE: for this calculation it is assumed interest is calculated annualy. Individual lenders may calculate interest monthly/daily for individual products


Calculations - interest only payments

















Current scheme payments

£

per month for

months then

£

pm thereafter





New scheme payments

£

per month for

months then

£

pm thereafter





Cashflow saving of

£

per month for

months then

£

for

months then









followed by

£

for

months to end of life



£

saving over a

month period - cash only



























Calculations - capital repayment with rests pa as given

















Capital after

initial term

Final capital

after months

Total Life from switch

Current scheme repayments

per month for

months then

pm thereafter





New scheme repayments

per month for

months then

pm thereafter





Cashflow saving of

<

per month for

months then

for

months then



















followed by

for

months to life end & capital saving of







saving over a

month period - cash only



















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