Remortgage or Product Transfer After Overpaying: What Is the Difference?
This guide is for general information only and does not provide financial advice. Check your lender’s terms before overpaying, as early repayment charges may apply. Your home may be repossessed if you do not keep up repayments on your mortgage.
When your deal ends, two common routes to a new deal are these. A remortgage usually means taking out a new mortgage, often with a different lender, to replace your current one, and usually involves a new application. A product transfer switches you to a new deal with your current lender, and may involve fewer steps. The details, and the costs, depend on the lender, so this page shows how to think about the numbers, not what any lender offers.
What overpaying changes
Overpaying lowers your balance before you switch, which lowers your loan-to-value (LTV) if your property value stays the same. The table shows an example: a £250,000 property and a £200,000 balance, with one-off overpayments before the deal ends. Whether a lower LTV changes what a lender offers depends on the lender, and this site does not say where any bands fall.
| Overpayment before switching | Balance after overpaying | Loan-to-value |
|---|---|---|
| None | £200,000 | 80.0% |
| £10,000 | £190,000 | 76.0% |
| £20,000 | £180,000 | 72.0% |
The table assumes the overpayments stay within your lender’s allowance and that no early repayment charge applies. See what an early repayment charge is.
Costs and the rate gap
The two routes can have different costs, for example fees or a valuation, and different rates on offer. One way to look at it is the rate gap that would be needed for lower monthly payments to cover an example cost. The table takes a £200,000 balance at an example 5% with 25 years remaining and shows how much lower the rate would need to be, over an example two-year and five-year deal, to cover each example cost. The costs are examples only.
| Example cost | Over 2 years | Over 5 years |
|---|---|---|
| £500 | about 0.18 percentage points | about 0.08 percentage points |
| £1,000 | about 0.37 percentage points | about 0.15 percentage points |
| £2,000 | about 0.73 percentage points | about 0.29 percentage points |
This ignores any early repayment charge on the deal you are leaving, interest on fees added to the loan and differences in other terms. Whether a route with higher costs works out cheaper depends on whether its lower rate saves more than the extra cost over the period you compare. The table shows the size of rate fall that would cover each example cost.
Questions worth asking
- What would each route cost in total, and what rate and terms would each give you? Only the lender or a regulated mortgage adviser can tell you.
- When does your current deal end, and could you arrange the next one in advance? See what your payment could be when your deal ends.
- Did your overpayments stay within your allowance? See when your allowance resets.
- Would the new deal allow overpayments, and up to what amount?
Free, impartial guidance on mortgages, pensions and retirement is available from MoneyHelper (moneyhelper.org.uk).
Figures are estimates from this site’s calculator, using the assumptions stated above each table. The rates, costs and property values shown are examples, not figures that are available to you. They are illustrations, not forecasts. Try your own figures in the free mortgage overpayment calculator.
If you are thinking about your mortgage and retirement, consider speaking to a regulated mortgage adviser, and to a pension or retirement adviser about any use of pension savings. This page is general information, not advice on your circumstances.
Questions people ask
Is a product transfer better than a remortgage?
Neither is better for everyone. It depends on the rate and terms each route would give you, the costs, and your circumstances. You may want to speak to a regulated mortgage adviser.
Does overpaying help when I switch?
Overpaying lowers your balance and your loan-to-value, which a lender may take into account, but it depends on the lender. This site cannot say what you would be offered. See overpaying before you remortgage and loan-to-value.
Do I need a valuation to switch?
It depends on the route and the lender. Check with your lender or a regulated mortgage adviser.
Related guides
paying off your mortgage before retirement, retirement interest-only mortgages explained. See also overpaying your mortgage after 55, overpaying your mortgage or saving in an ISA, what happens to overpayments when you remortgage and when to speak to a mortgage adviser.