Your Money: Move to a better mortgage deal

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The Independent Online

The Bank of England's Monetary Policy Committee proved it was capable of producing a shock or two last week as it cut interest rates again, even though virtually every economist had predicted otherwise.

Mortgage rates are now at their lowest levels for nearly 40 years, making remortgaging a sensible option for most home owners (see back page).

If you are on your lender's standard variable rate and won't incur punitive redemption penalties for switching, you should consider a discounted or fixed-rate deal. Even with redemption penalties, it might still work out cheaper to move.

Fixed rates are a good idea because they buy certainty: you know exactly how much you have to pay over two, three or five years, depending on how long you fix for.

And with interest rates unlikely to fall much further (if at all) but likely to increase instead before the end of the year, you probably won't find better rates if you bide your time.

Some brokers recommend that you fix for as long as you can.

Simon Tyler, at mortgage broker Chase de Vere, says that standard variable rates have averaged out at 7.5 per cent over the past five years. So if you can find a deal which allows you to fix at below 6 per cent for five years, you should be on to a winner.

Yorkshire Building Society's five-year, fixed-rate deal at 5.69 per cent is good value, for example. Or you could get a slightly cheaper fixed rate (5.19 per cent) over two years.

One note of warning: Mr Tyler recommends holding on for a few days before switching to a new deal, to allow for any changes arising from the rate cut to make themselves felt.

Discounted deals are another option, although they are becoming rarer because they are so expensive for lenders. As mortgage providers concentrate on lowering their standard variable rate – so that existing borrowers benefit from low rates as well as new ones – discounts are becoming rare.

However, Alliance & Leicester has a two-year discount of 1.9 per cent, giving a payable rate of 4.84 per cent. Of course this can go up if interest rates increase, but even so, it is likely to remain a cheap deal and there are no penalties at the end of the term.

A mortgage broker should be able to give you a quick answer as to whether remortgaging is worth your while or not. If it is, you'd be mad not to.

m.bien@independent.co.uk

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