Is Switching Mortgage A Good Idea For You?

There's a fairly simple way to work out whether switching mortgage makes sense for you.

It takes a little effort to work out whether switching your mortgage is a good idea. As a rule of thumb, if you're paying your mortgage company's standard variable rate (SVR), you can surely get a better deal! Beyond that you need to do some sums, but hopefully this won't put off most Fools.

The biggest problem that people have when comparing the cost of their existing mortgage with switching to a new one is the arrangement fee. However, it doesn't have to be complicated. The simplest way to find out the cost of the new mortgage is to use a tool that exists on this very website. Here's what you do:

Go to our mortgage centre and select the tab 'Search All Mortgages', which you'll find just above the comparison table towards the right.
Fill in the form and you'll see when you get to the bottom that you can select not just the length of the mortgage, but also the period of time for which you'd like to calculate the true cost. The true cost is the monthly payments and the arrangement fee added together; for example, if you expect to pay £500 per month for 36 months plus an £800 arrangement fee, that's £500 x 36 + £800 = £18,800.

When selecting the period for which you want to calculate the true cost, it normally makes sense to select the same time that you want your new deal to last. So if you want a two-year fixed rate mortgage you should also choose for the true cost to be calculated over two years. The search will then bring back a list of the best mortgages and calculate their true cost for two years.

Bear in mind that these calculators sometimes suffer from minor errors and our one is no different, but they're still pretty accurate. To get a figure down to the last pound, you could then click on the 'More Details' button next to the mortgage to find the arrangement fee and do the above calculation yourself. Alternatively, you could ask the new mortgage company for the exact figure.

Finally, in order to work out whether you should switch you need to compare the results to your existing mortgage. This is simple too; it just requires an ordinary calculator. Multiply your current monthly payments by the same number of months that you want your new deal to last. So if you're paying £650 a month over 36 months that's £23,400. Comparing this with my earlier example, you could see that you'd expect to save around £5,000 over three years with the new mortgage, so switching probably makes sense.

Don't forget the other factors when switching though, such as exit fees, legal fees and possible interest-rate changes. You can learn more about mortgages with our free mortgage guide, which you can find at the top right of this page.

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