Easy steps to remortgaging

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By Luke Jovetic
Know Your Money Editor

A growing number of Britons are looking to remortgage their homes, showing the tide is turning in terms of home loan apathy.

According to the latest statistics from the Council of Mortgage Lenders, the number of people remortgaging increased slightly - by six per cent - in June 27,000, amid fears about the ongoing economic uncertainty and looming job cuts encouraged people into taking action.

One of the benefits of switching is that is could save you money. Cutting one per cent off a £100,000 mortgage will slash costs by around £80 a month. Remortgaging to a better rate could be the biggest single money-saving activity available to you.

However, if you are considering making a switch then could be a number of things worth considering.

Look at your current deal

It seems an obvious statement, but before you make any changes it is best to take a close look at your current deal and weigh up the pros and cons.

Find out what it will cost you to leave your current deal and find out if it would be better for you to wait until Early Repayment Charges expire, as these could leave you faced with some nasty charges.

It may also be wise to ask your current lender for a better deal, as you will then have figures to work from.

Variable or fixed rate?

A key question you could be faced with is whether you want a mortgage deal that is fixed or variable.

Which one is right for your will depend on your circumstances, as there is no guarantee one is better than the other and both have advantages and disadvantages.

Five-year fixed deals have seen rates edge down in recent times and may be worth looking at.

The situation is better than two years ago when the best deals were 5.5 per cent or more. However, back in 2003 deals were available for as little as 3.75 per cent.

Experts have recently suggested fixed rates could be an option worth considering for people who are on a tight budget and looking for a mortgage in the near future.

Alternatively, a variable rate may be a better option, although the amount you pay - as the name suggests - can move up or down.

This usually occurs when the Bank of England base rate announces a change.

Expert advice

Homeowners on variable-rate loans would see repayments rise if the base rate increased dramatically.

At present, families are benefiting from historically low average mortgage rates of 4 per cent. Some are enjoying even lower standard variable rates (SVRs) of 2.5 per cent but these are generally linked to the base rate.

David Hollingworth at London & Country told the Daily Express: "If the base rate were to rise to eight per cent then a borrower with a £150,000 interest only mortgage at 2.5 per cent would see monthly repayments rise from £312.50 to £1,250 (at 10.5 per cent interest)."

Melanie Bien, director of mortgage broker Private Finance, told the newspaper: "While we think eight per cent is unlikely, it is important not to be complacent - there is only one direction in which rates can move.

"Those on cheap standard variable rates would be hit hard as lenders could raise these by more than any base rate rise - the SVR is set at the lender's discretion."

"If you are on a more expensive SVR it might be worth remortgaging now, as rates aren't going to get any cheaper."

She advised those currently in a fixed rate could try to overpay now, in order to cut their mortgage more rapidly.

Compare the options

As always, financially-savvy consumers will know it is wise to shop around to see what deals are available.

Thankfully, this no longer requires you to walk from bank to bank to get information.

Why not find the right mortgage deal for you with our comparison table?

Important Notice
This guide is intended for general information only and is not intended as, and does not constitute, any form of advice, recommendation or endorsement by us of any particular product(s) or services and you should rely on your own further research and professional advice in relation to your specific requirements and circumstances before purchasing any products or services. Use of this guide is subject to the Terms of Use of the KnowYourMoney site.