Renewal is the one moment in the life of a mortgage where you have full freedom and no cost to move. Most people sign the first offer anyway, and lenders know it.
What the letter is
A renewal offer is a rate your current lender is willing to give you to keep the business without you asking for anything better. It is often above what the same lender would offer a new borrower on the same day, and above what the wider market would offer.
What switching costs
At maturity, no penalty. A new lender will normally cover the discharge and assignment costs on a straight switch of the same balance and amortisation. If you want to increase the balance or pull equity, that is a refinance rather than a switch and the arithmetic changes.
Compare four things, not one
- The rate, over the full term rather than as a headline.
- How the penalty would be calculated if you had to break early, which varies enormously between lenders.
- The prepayment room, and whether you would realistically use it.
- Whether the mortgage is portable if you move mid-term.
Timing
Start about four months out. Most lenders will hold a rate for 90 to 120 days, so beginning early costs nothing and gives you the option of locking if rates move against you. Waiting until the last two weeks removes every option except signing.
Sources
Your next useful step
Compare the renewal in front of you before you accept it or pay to leave it.
