Remortgaging: your questions answered

Homeowners with mortgage deals expiring in the next few months face some tough choices to keep their bills under control.

But if rates have hit their peak, is it best to avoid locking into a fixed-rate deal in case they fall? Or should you take advantage of the deals on the market now – which are typically cheaper than they were in September 2022?

Here, Which? offers advice on the most commonly asked questions about remortgaging as well as tools to help you understand your situation.

1. How much more will my new mortgage cost?

First, find the rate you're paying now and how much your outstanding loan is (check a recent mortgage statement).

Then look at what rates are available now. You can use our regularly updated story: best mortgage rates for home movers and first-time buyers, for this.

With this information you can use our mortgage repayment calculator to check how your monthly repayments might change. 

2. Will mortgage rates go down?

In the long term, it's anticipated interest rates could fall once the government gets a handle on sky-high inflation, which remains in double digits at 10.1%. 

That said, we probably won't see a return to 2021 lows, when there were more than 100 fixed-rate mortgages with rates under 1%.

The International Monetary Fund (IMF) expects interest rates to head back towards pre-pandemic levels, potentially easing the burden on mortgage holders. When that might happen, however, is difficult to gauge. 

In the short term, another Bank of England base rate hike could be on the cards in May. If that happens, mortgage rates could rise again. But experts predict this could be the last base rate increase for a while, which should mean mortgage rates stabilise. 

Take a look at the graph showing the relationship between the base rate and fixed-term mortgage interest rates over the past five years. 

• Find out more: Bank of England base rate and your mortgage 

3. How long should I fix for? 

You've normally got the option of two, three, five and 10 years. 

Typically, longer-term deals come with a premium compared to short-term deals. However, at the moment, Moneyfacts data shows the average rate on shorter-term fixes are more expensive than longer-term deals.

With a five or 10-year deal you get the piece of mind that your payments won't change over the long term and you won't have to factor in the costs of remortgaging every couple of years. 

However, you might not want to lock into a 5% interest rate for that long. With a shorter-term fix, you would have the freedom to switch deals and benefit if rates dropped, but there's no guarantee that rates will decrease.

Three-year fixes could be a good compromise. They are less common, but they do offer competitive rates at the moment.

4. Is a tracker mortgage a good idea?

There are two key ways in which tracker mortgages differ from fixed-rate mortgages. 

Firstly, the rates are variable and usually set at the Bank of England base rate plus a set percentage – meaning every time the base rate changes, your monthly repayments also change. This has presented big problems recently, with 11 consecutive base rate hikes.

The base rate currently stands at 4.25%, but experts predict it will peak this summer, with next month's anticipated rise to 4.5% being potentially the last increase for a while.

The second key difference is that tracker mortgages often come without early repayment charges (a penalty for repaying your loan sooner than the term of the deal). This means that if you move house or choose to remortgage to a different deal, you won't have to pay a fee to exit the tracker – unlike with a fixed-rate mortgage. This makes them appealing to those looking for a bit of flexibility.

Right now, the leading two-year tracker deal is Halifax's 4.48% rate. It is set at 0.23 of a percentage point above the base rate – so if the base rate were to fall to, say, 3% later this year, the tracker would drop to 3.23%.

With a tracker, you need to be comfortable with the risk of your monthly mortgage payments going up if the base rate rises, and confident you'd be able to cover the higher payments. You can use our interest rate calculator to see how different rate changes would affect you. 

• Find out more: tracker mortgages explained

5. Should I go onto my lender's standard variable rate (SVR)?

If your existing fixed, tracker or discount deal is coming to an end and you don't remortgage, you'll end up on your lender's standard variable rate.

This isn't ideal, as the average SVR offered by the UK's main mortgage providers is 7.3% – the highest it's been since April 2008, according to Moneyfacts.

When you compare that with the average rates for two-year (5.25%) and five-year (4.97%) fixed-rate deals, it's easy to see you'll face much higher monthly mortgage bills if you end up on an SVR.

However, like tracker mortgages, SVR mortgages do offer the upside of increased flexibility if you plan to move house soon or want to remortgage when rates fall, as they won't generally carry an early repayment charge. 

• Find out more: SVR mortgages explained

6. When can I remortgage?

In order to avoid being automatically put on your lender's SVR, you'll need to agree a new deal, either with your current lender or another, before your expiring term comes to an end.

You can usually lock in a new mortgage rate up to six months before the end of your fixed term, so it's worth shopping around ahead of time and looking again when the deadline is nearer.

Have a conversation with your lender about the best rate it can offer and use examples of other rates you've seen from competitors to see if you can get it to improve its offer.

• Find out more: remortgaging explained

7. How can I work out my current loan-to-value?

A crucial number in the remortgaging process is your current loan-to-value or LTV. 

This is the percentage of the property price that you need to borrow, versus what you own. For example, an 80% LTV means taking out a mortgage to cover 80% of the property's value, with you owning the other 20% outright.

As you repay a capital repayment mortgage, you build up the level of 'equity' you own in the property by paying down the debt. So when you come to remortgage, the LTV you need is likely to have decreased since you took out your current deal.

Lenders tend to offer better rates to those with lower LTVs, for example 80% LTV deals tend to be cheaper than 90% LTV deals.

The value of your property can also have an impact. If it has fallen in value since you bought it, there's a danger you could be in negative equity (where the value of your home is less than the amount you've borrowed). But if it has risen in value, you might have a bigger share of equity when compared to how much you owe on the loan.

You can make a rough guess at your current loan-to-value by checking your home's current value on a website such as Zoopla and working out how much of your loan you have to pay back (this should be on your latest mortgage statement). You can then calculate your LTV by taking the loan amount and dividing it by the current property value.

• Find out more: use the Which? LTV calculator to work out your loan-to-value ratio

8. I won't be able to afford the new rates when I remortgage, what can I do?

Hordes of homeowners took out two-year fixes in 2021 after snapping up a property before the stamp duty holiday came to an end. Now, as they come to remortgage, they're being met with much higher rates. 

If you think you won't be able to make your mortgage payment, the first thing to do is contact your lender, as it might be able to offer one of the following options:

• A mortgage payment holiday: your repayments are paused for a set period of time – but interest will still be added to your loan, so you'll likely pay more interest in the long run.
• A switch to interest-only payments: you'll just pay the interest on your mortgage rather than the capital amount for a set period of time. However, at the end of the term, you'll still owe full the amount you borrowed.
• Extending the term of your mortgage: this will reduce your monthly payments, but means you'll be paying the loan back for longer. Because of this, you'll pay more interest and will end up paying more overall. Many lenders won’t allow you to take it into your retirement period.  

Head to our guide to learn what to do if you can't pay your mortgage.

• Find out more: what to do if you've already missed a payment 

9. Can I switch to a better mortgage deal if rates drop?

People locking into a fixed term always fear rates will then fall, leaving them paying a premium price. 

Depending on your lender, you may be able to leave your current term early and switch to another provider offering cheaper rates. However, you'll usually have to pay an early repayment charge – which could end up costing you more than the amount you'd save in interest with the new deal.

Legal fees for valuing your property and conveyancing will also need to be paid. Plus, it's likely there will be arrangement fees to consider with your mortgage provider – which tend to range between £500 and £2,000.

The costs could therefore mount up, so it's important to check your mortgage documents to establish precisely what costs will be involved by remortgaging to another deal mid-term. 

• Find out more: remortgaging explained

10. How can a mortgage broker help with remortgaging?

With thousands of mortgages out there, comparing the cost of deals can be complex and time-consuming. 

A good mortgage broker can assess the whole of the market to find you the most suitable deal for your circumstances. They can apply for deals on your behalf and communicate with the lender – potentially saving you a lot of time and stress.

• Find out more: cost of living news and advice