Why not find a new home for your loan

There's never been a better time for homeowners to save money by moving their mortgage to another lender. So goes the spiel from mortgage brokers and lenders - whose livelihoods, of course, depend on us buying their products.

However, far from being a hollow boast, they could well have a point. A number of factors have come together to make now a very good time for people to dig out their home loan documents and consider their remortgaging options.

The cut-throat competition raging in the mortgage market means there are some very good deals around for those looking to switch. While the typical bank standard variable mortgage rate is 7.74%, there are a number of penalty-free fixed-rate and discounted deals available priced at below 6%.

For an interest-only borrower with an £80,000 mortgage who is currently paying the standard rate and is not locked in, switching to a rate of, say, 5.75% fixed for two years could give a saving of almost £133 a month. That adds up to a staggering £3,184 over two years.

Over the past few months fixed rates have been edging downwards, despite the fact that interest rates have remained unchanged since February. At the same time, more and more lenders are now throwing in a free valuation and will pay most or all of your legal fees if you remortgage with them. Some times they will waive the arrangement fee as well.

"The case for remortgaging has never been stronger," says Simon Knight at Independent Mortgage Collection, a network of mortgage brokers.

There are no hard figures but it is estimated that around half of the UK's homeowners are on their lender's standard rate. Many of them could walk away at any time because there are no early redemption penalties locking them into the deal.

If you are considering moving your mortgage, the type of deal you should go for will obviously depend on your own financial circumstances and where you see interest rates going. If you're on a tight budget, you may want to opt for the certainty offered by a fixed-rate mortgage - with these, you know exactly what your monthly payments will be and you won't suffer any nasty shocks should interest rates shoot up suddenly. Others will take the view that a discounted mortgage is a good idea because it will enable them to benefit from the anticipated future rate cuts.

Here we look at some of the different categories of borrower and whether they should consider remortgaging to reduce their costs.

Borrowers on the standard variable rate with no redemption penalties

It is thought that around 25% of homeowners are paying their lender's standard rate and yet could leave and take up a cheaper deal at any time because they are not tied in by lock-in penalties. It's hard to disagree with the verdict of brokers who argue that these people are simply throwing money away.

Borrowers on the standard variable rate with redemption penalties

Again, it is estimated that several million homeowners are tied in to their lender's standard variable rate by an early redemption penalty. If you are in this sort of position, the first thing you should do is talk to your lender to see if there are any other products they will let you switch into. If they won't play ball, the choice is either stay where you are or pay the redemption penalty so you can move to another lender's cheaper deal. You'll need to do a bit of maths on this because you need to make sure that paying the penalty and going elsewhere will cost you less than staying on the standard rate.

If you've only got a few months or, perhaps, a year to go until the penalty runs out, you would probably be better-off staying put and then moving as soon as you are free to do so.

There is now a simple way of finding out whether or not it's worth remortgaging. Bath-based mortgage broker London & Country has developed a redemption penalty calculator that enables you to quickly find out whether you could save by switching. You need to phone 0800 373 300 and tell them the size of your mortgage, the rate you are on, and the amout of the redemption penalty and how long you are tied in for. The service is free. Financial services website www.money supermarket.com has just launched a similar online service called "Redemption Buster".

Borrowers on annual review schemes

Up to 3m people are on so-called annual review schemes, where your monthly repayments are set once a year - normally between January and April - and don't fluctuate despite interest rate changes.

Many of these borrowers face a sharp increase in their monthly payments in the new year because these will be recalculated to take into account the two interest rate rises earlier this year and the abolition of mortgage interest tax relief (Miras) back in April.

In all, an annual review borrower with a £50,000 home loan could see his or her mortgage payments rise by £32 a month - that's £385 over a year. So, the message is: think about remortgaging now to beat the increase.

People with small mortgages

"The smaller your mortgage, the less worthwhile it is likely to be to remortgage," says Ray Boulger at mortgage broker John Charcol. That's because some of the costs you may have to pay will be the same whatever the size of your loan. And most lenders will not allow remortgages for less than £25,000, he adds.

With literally thousands of mortgage deals out there to choose from, it's no wonder many people find the idea of switching to a new deal daunting. However, the internet is making it easier than ever to find the mortgage that's right for you.

Many of the websites allow you to search for the deals that meet your particular requirements, compare products from different lenders and see what the monthly payments would be. NetMortgage (www.netmortgage.co.uk), the online service of mortgage broker Savills, carries details of home loans from 120 lenders, while Charcolonline, John Charcol's online arm, has more than 500 mortgages from 45-plus lenders in its database.

Other useful sites include Moneyfacts (www.money facts.co.uk) and E-Loan (www.eloan.com/uk).

While the brokers want you to apply online using their sites, there's nothing to stop you using them as a free research tool.

The best deals

These, according to the experts, are some of the best remortgage deals to be had:

• John Charcol is offering a three-year fixed rate it says is the cheapest on the market - 5.89% fixed until July 31 2003. There is a free valuation, no legal fees to pay on remortgages, but there is a redemption penalty of 3% of the loan until the end of the fixed-rate period. Minimum loan is £75,000. The deal is funded by Principality building society.

• For those who don't want penalties, Stroud & Swindon building society has a two-year deal fixed at 5.95% until November 1 2002. Again, there is a free valuation and the legal fees are covered, but there is a £295 completion fee. They will lend up to 85%. After the fixed rate runs out you are guaranteed a 0.5% discount off the standard rate until November 2005.

• Also penalty-free is a 5.75% deal fixed until October 1 2002 from Portman building society. Again there is a free valuation and the legal fees are paid. There is a £300 acceptance fee. They will lend up to 95%.

• The Halifax is offering a base rate tracker deal where you pay bank base rate minus 0.45% until December 31 2002 - with the base rate currently 6%, that gives a current payment rate of 5.55%. There are no fees, no redemption penalties at any time, and the maximum loan is 75%.