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Wondering how to remortgage? Looking to move home? Then you’ll want to read our guide to remortgaging to make sure you get yourself the best deal you can. We’ve got loads of information on the best mortgage deals, plus the low-down on the state of the current mortgage market. 

• The state of the mortgage market today (March 2012)
• What is remortgaging?
• How to remortgage: three steps to finding the best mortgage deal

How things currently stand (March 2012)

The base rate is, and has been, extremely low for some time now. With the ongoing financial turmoil in Europe and economic gloom here in the UK rates are unlikely to rise a great deal in the short term. In fact some economists have predicted that a rise from the current 0.5% base rate is unlikely to happen before the autumn of 2014.

Of course no one can be absolutely certain what will happen to interest rates, which is why many people are still opting for the stability of a fixed-rate mortgage. On the other hand, those willing to take more of a risk are opting for lifetime trackers to take advantage of the lower rates.

But the question on everyone’s lips is: should we be fixing or not?

Here’s what you need to consider:

• If your current mortgage deal is coming to an end and you have moved onto your lender’s standard variable rate (SVR) then fixing could be a good option for you now. While shorter-term (two year) fixes often have better rates, they usually incur larger remortgage fees and will leave you searching for a new deal at a time when the rates are likely to be higher. A five-year fix might seem expensive now, but it gives you more security against rising interest rates  and could well save you money in the longer term.

• The best rates for medium term (five year) fixes at the moment are around 3.5% – relatively high considering the base rate, but still historically pretty cheap. These deals are good if you like the idea of knowing exactly what you will pay each month.

• If however you are happy to take a bit more of a risk you can opt for a fee-free lifetime tracker – currently these are at about the 2.75 – 3% mark. Of course if the base rate rises, so will your interest but you will save money on fees compared to a fixed rate deal. On repayments for a £100,000 mortgage a lifetime tracker works out at about £60-£70 a month cheaper than a fixed-rate option.

• If you are one of those lucky people already on a tracker mortgage taken out a while back which pays base rate plus about 1%, then fixing might not be worthwhile for you yet. The base rate would need to rise to around 2.5 – 3% for you too be worse off than on a longer term fixed rate deal at the moment.

• If you are remortgaging because you are moving home, remember that the very best deals are still available only to those with larger deposits – 25% or more – so make every effort to save as much as you possibly can – that will save you money in the long term.

What is a remortgage?

There are three different types of remortgaging:

1.  When you want to switch to a better deal. This is when you transfer your mortgage from one company to another, or change it to a different type of mortgage with your current lender.  It is what you should do when you come to the end of a fixed deal.

When you remortgage at the end of a fixed deal, the balance of your mortgage remains the same as you are just transferring to a deal with a different rate of interest.

2. When you are moving house. Often you will have to remortgage in this instance because the value of your new property is more than that of your existing property. It will involve switching deals in the same way as we’ve explained above, but the balance of your mortgage will change.

Even if your lender will allow you transfer your existing mortgage in theory, they will require a valuation of the new property to ensure all their needs are met.

3. When you want to release equity from your home. This is when you take out a larger mortgage in order to borrow extra money with which to pay off other debts. We advise against this wherever possible – see our article on remortgaging to pay off your debts to find out why.

This article deals with the first type of remortgaging: those who are coming to the end of their fixed term period (where interest rates remain the same rate for a fixed amount of time) and are facing higher interest rates unless they change mortgage. Bear in mind that many of the same rules do apply for those remortgaging to move house too.

How to remortgage: three simple steps to get the best deal

1. Start looking before the end of your fixed-term. 

If you’re coming towards the end of your fixed-term period, start looking straight away. You can arrange a remortgage up to six months before the end of your fix – and because the good deals are snapped up so quickly at the moment, arranging it early is the best thing to do.

Waiting until the end of your deal will mean you’re put on your lender’s standard variable rate (SVR) which will undoubtedly be more expensive.

2. Get a broker

A good mortgage broker will look at the whole of the market for you (not just a few companies that they are tied to) and be able to find you the very best deals on offer.  Moneymagpie recommends London & Country because:

• They are completely independent so they can offer you totally impartial advice.
• They cover the whole of market and even offer exclusive deals you can’t get anywhere else.
• They have won more awards than any other broker.
• The service they offer is absolutely 100% FREE.

So have a chat to a London & Country advisor to see what deals they can find you.

If your broker does find you a great offer, you should also consider having a chat with your current provider to see if they can match the offer.  They won’t always be able to – but if they do, you can avoid the (sometimes excessive) exit fees that are involved with changing your mortgage provider.

3. Start budgeting

As soon as you start looking, you should start to budget for your new mortgage. Your new deal may be more expensive than your current payments and even if it is cheaper there are exit fees and arrangement fees to consider – so allow for this in monthly expenditure as soon as you can.

If you find a better deal than the one you have currently, you could consider continuing to pay the same amount as you did before so that you can pay off your mortgage quicker and save yourself a TON of money in wasted interest payments!

How much will it cost?

The costs that you will have to fork out for straight away are the arrangement fees for the new mortgage and the exit penalties on your current mortgage.  These vary greatly across different banks and different mortgages, but can be between about £100-£3,000.

More recently, arrangement fees have become a tool to manipulate comparison tables. By offering a lower rate of interest but high arrangement fees a mortgage provider can get up high on comparison tables. They then make the money back by hiking up arrangement fees.

This can work to your advantage: if your mortgage is over £200,000 you’ll probably save money by paying a higher arrangement fee and then lower interest. However under £200,000 it’s probably better to go for a slightly higher interest rate to save on arrangement fees.  For more information on cost see our article on mortgage set up costs.

Find out how much you will pay in interest with our handy mortgages calculator below.

The Moneymagpie.com Mortgage Calculator

What if you can’t get something you can afford?

If you find that either no one will offer you a new mortgage or the ones you are being offered are simply too expensive, then you have two choices.

Firstly you will have to be resourceful and try to make more money out of your house in order to be able to afford it, or, if this is not possible, you should seek help and advice from debt and housing charities.

Make money from your home

There are two big ways to earn from your home. You can rent out your driveway, garage or parking space, and if you live in the right area it can make you as much as £17,000 a year. Alternatively, try renting out your spare room which can make you a tax-free income up to £4,250 a year.

For more money-making ideas check out our most popular article – 10 easy ways to make quick cash. 

Seek help quickly

Don’t bury your head in the sand if you really are facing a problem. There are plenty of free services out there to help you, so make the most of them as soon as you think you might be struggling.

Housing charity Shelter has loads of specialist advice, while the CCCS (Consumer Credit Counselling Service), the Citizens Advice Bureau or National Debtline will help you with any debt worries you might have.

Act now

• Talk to independent brokers London and Country for a free quote.
• Download our FREE comprehensive Mortgage Guide