When it comes to purchasing property, mortgages are generally the most common method used.
This financial tool enables you to purchase a new home or commercial building without emptying your bank account and needing to find the money to buy it outright.
On that note, mortgage deals are subject to market conditions, and the different aspects, like interest rates and terms, change over time.
With a product transfer mortgage, you can change your existing mortgage to a new deal offered by your current lender, this is typically done when your current mortgage product period is about to end and you are going onto your lenders standard variable rate.
Such a practice is common among experienced property owners. In fact, according to a report published in 2018, nearly 1.2 million people took a product transfer. However, if you are relatively inexperienced, then you might not know what it means.
That’s what this guide is all about, so we suggest that you read on!
Table of Contents
What Is A Product Transfer Mortgage?
A product transfer mortgage allows you to transfer your existing mortgage plan to a new one with your existing lender across the mortgage product range that they offer.
For example, let’s say that you have a two-year fixed mortgage product. Typically 6 months before the end of the initial 2 year fixed period, you can start to look at product transfer options with your current lender on what they can offer you once your 2 year period ends and you will go onto their standard variable rate.
How Does A Product Transfer Mortgage Work?
A product transfer mortgage is basically a rate switch tool that allows you to change your current mortgage product with your existing lender.
Therefore property owners sometimes opt for product transfers when the term of their existing mortgage product is about to end in order to fix in a new rate with ease. Depending on the lender term extensions or reductions may be allowed.
The reason for this is because it is when the current product ends this usually aligns with the end of early repayment charges. Besides, once your current mortgage product term ends, you will be put on the bank’s standard variable rate (SVR) which is usually higher.
This rate is usually based on the Bank of England interest rate, or it can be determined independently by the lender.
The Bank of England rate changes according to market conditions and is currently sitting at 5.25%. In any case, the SVR is usually always higher than the interest rate of your fixed-rate mortgage.
That is why it is a wise idea to get a product transfer mortgage before your current financing plan ends to ensure you do not spend any time on the standard variable rate.
When considering a product transfer mortgage, the loan amount and term duration do not change unless specifically granted by the lender.
Because of this reason, getting a product transfer is usually a simple and straightforward process for both the lender and the borrower.
In fact, most lenders won’t even conduct a credit check or affordability evaluation before approving a product transfer mortgage.
Mortgage Product Transfer Vs. Remortgaging
A lot of people tend to confuse mortgage product transfers with remortgaging. This is because a remortgage follows a similar principle as a product transfer mortgage. It helps to transfer your existing property mortgage plan to a new one.
In that context, remortgages can be used to consolidate debts or release equity, among other things.
You can do the same with product transfer mortgages alongside a further advance, which is why a lot of people think they are the same.
However, there are a few fundamental differences between mortgage product transfers and remortgages.
So, it is important that you know what these differences are since that will help you to decide on the best refinancing option for your property.
For starters, product transfer mortgages are done with the same lender. This sets it apart from a typical residential or commercial remortgage that can be done with different lenders.
Another aspect that differentiates product transfers from remortgages is the time taken to complete the process.
Since the lender, term and loan amount remain the same in a product transfer mortgage, the process can be completed very quickly.
In contrast, a remortgaging process may consist of extra steps since it allows you to change your loan amount and term.
Benefits of Product Transfer Mortgages
Some property owners prefer to lock in a product transfer mortgage instead of other refinancing options such as remortgage.
This is all thanks to its benefits, as we have discussed below:
- Less paperwork for the borrower
- Quick and convenient process
- Less work for the lender
- Additional credit checks are not always required
- No extra fees such as solicitors costs
- There is no need for a property valuation
Drawbacks of Product Transfer Mortgages
There are some disadvantages to getting a product transfer instead of a remortgage, as we have highlighted below:
- You are limited to the product range of the existing lender so you may end up paying more on your mortgage as opposed to remortgaging
- The lender can’t provide advice about refinancing options elsewhere
- You may not be able to extend the mortgage term
How To Arrange A Product Transfer?
Getting a product transfer is pretty straightforward, as we have mentioned once before. You can simply contact your lender or a mortgage advisor who can arrange this for you, letting them know about your intention to transfer.
After that, you will need to go through a product transfer application process to arrange the new mortgage deal.
The application process is usually straightforward and at the end you will have different rate options from the lender’s current product range.
The lender does not need to reassess the property value or conduct many of the background checks necessary for getting a new mortgage.
Your lender will already know about your financial background since they already assessed that when you got the original mortgage plan.
Once your application is approved, your existing mortgage will be transferred to the new plan usually on the date your current fixed rate ends, and your monthly payments will be changed accordingly.
Things To Consider Before A Product Transfer
Before you commit to a product transfer, you need to keep the following things in mind. These will help you get the best mortgage deal available, which will be financially advantageous.
1. Research The Market And Check The Product’s Of Your Lender
You should extensively research the existing mortgage deals available on the market. This includes checking mortgage products from different lenders as well as your own lender. Remember a product transfer may be more costly in the long run if your current lender isn’t offering competitive rates at this time.
2. Seek Help From A Broker
If you are not sure how to perform the refinancing process, you should seek the help of a professional broker.
They can analyse your existing financial condition and guide you on the best possible course of action whether that is to stay with your current lender or remortgage to another lender.
A broker will have access to your product transfer rates and can compare them from across the market to make sure you get the right deal for your circumstances. They can then arrange the product transfer or remortgage for you and take away the stress.
Conclusion
Getting a product transfer mortgage has its advantages, as you can see in this guide. However, it is not the only refinancing option available to you and you should consider all options beforeing to your fixed rate.
Naturally, the debate between mortgage product transfer vs remortgaging holds quite the significance here. After all, your end goal should be to find the best and most suitable deal for your circumstances.
Your home may be repossessed if you do not keep up repayments on your mortgage.
All content is written by qualified mortgage advisors to provide current, reliable and accurate mortgage information. The information on this website is not specific for each individual reader and therefore does not constitute financial advice.
Our goal is simple - to provide most up-to-date and accurate mortgage information to make your mortgage journey as stress-free as possible. Have a question? Fill up the quick form and one of our mortgage advisor will connect with you.
