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As the vast majority of us do not switch mortgages actively unless we move house it is almost certain that you are paying to much for your mortgage – and in some cases you may be paying very much more than you need..

New borrowers get the best deals

At the point of purchase most mortgage buyers shop around to find the very best deal. This means that to survive lenders often have to offer large discounts on rates and other up front inducements to get new business. These new business deals are unsustainable for the lender over the long term and therefore often lapse after a year or two and the borrower reverts to a standard rate of interest on which the lender can make serious money. Lenders also hope to cross sell other financial services products – insurance and banking services – on which they can also improve their margins from your business. Some lenders make more from payment protection and other insurances for new customers than they do from the core mortgage and banking services.

So new borrowers get the best deals and existing borrowers drift into less competitive mortgage rates. Lenders hope this goes relatively un-noticed and their profits are made from the inertia of existing customers who see it a major hassle to have to switch mortgages and associated insurances.

Active re-mortgaging makes sense

So if you’re prepared to put in a little effort in regularly re-mortgaging you can benefit from the lenders appetite to attract new customers with short term “loss leading” deals which are uneconomic for them but very attractive to you.

However you must follow these 5 golden rules of mortgage switching – otherwise don’t do it

Switching makes sense but there are important rules you have to follow to make it work for you :

1. Be prepared to switch again when deal period ends.

Often these early discount deals mask an uncompetitive long term mortgage product. So you have to be committed to switching out of the mortgage when the deal period ends otherwise the savings you have made will soon be eaten up once the real mortgage terms kick in. Check there are no onerous exit fees and diary well in advance of the end of the deal period to start your research as switching can take a little time to organise. Examples>> (In these links we can also introduce QLagoonproducts /deals /recommends as the site develops)

2. Calculate savings comparisons between mortgages over the deal period only.

When comparing costs you must calculate these over the deal period only – so if you are choosing a deal with a three year discount compare relative costs over the three year period – as you should be switching out again after that. This means to watch out for any up front costs such as arrangement fees, valuation fees, compulsory insurances as well as any redemption/exit fees which over the short deal period can make a competitive offering uncompetitive. Many comparison websites either compare initial rates or total costs over the whole term of the mortgage – neither are relevant for an active switching strategy. Examples>>

3. Don’t buy any of the lenders insurances without checking price comparisons.

Mortgage switchers can often congratulate themselves on the savings made then be persuaded to take out lenders in-house insurances which often have high sales commissions and are often uncompetitive. Some building society lenders may have good products but do check first. Examples>>

4.Decide when the time is right to find a long term mortgage solution.

Active switching only makes sense whilst you have guaranteed earnings to make you attractive to a new lender. If your earnings are likely to reduce or you may plan to switch to a less secure employment (e.g. self employed) then it may be that when you come to switch again you will not get the best deals and you could get stuck in an uncompetitive long term mortgage. QLagoon believes that an Offset Mortgage provides the flexibility to manage the transition as you approach retirement years. It is important to switch into your long term mortgage when you have the earnings and other criteria to attract the very best and flexible mortgage offer. Lenders will quickly desert you once you go outside of their “safe” criteria however many years you’ve had an exemplary payment record. . Examples>>

5. Do your research to find the right mortgage product before you switch.

There are at least 7000 mortgage products so it’s a financial maze finding the right product. By defining your requirements you can narrow the search dramatically. If you decide to become an active mortgage switcher as your property, employment and income profile makes you an attractive borrower, then then choosing the right product comes down to price comparisons which is easy to research. Even when choosing a longer term mortgage solution defining your “must have” features can narrow the choice to manageable proportions. These days there are lots of comparison websites which help you do you own research, which we believe is always advisable before you seek external advice. Examples>>

QLagoon call to action ??? Lead Form?? Weblinks?? Switching Evaluation Service (Could be generic – ie not FSA related??)