How to pick the right remortgage deal

Many SVR mortgages are cheap and they come with fewer restrictions and penalties than most deals, but some trackers are cheaper, and long fixes also look good value. How do you choose?

A fixed mortgage and a tracker are not equally good or useful for all different types of borrower, nor is a two-year deal or a ten-year one. Hence, you can't simply choose the mortgage with the cheapest interest rate - you need to consider the price against the benefits of each mortgage.

To find out if the price is right, trackers should be compared to the base rate and fixed deals should be compared to average historical fixed rates of the same length. By doing this, you're able to smoothly compare these apples and pears.

SVRs are once again different, but they too can be compared when you know how.

Having done all that research and number-crunching for you already, I can help you to compare all these types of mortgage and make sensible decisions. I can't promise you those decisions will work out the cheapest, because we don't know the future, but I think they will be sensible, logical, safe decisions, and that you'll have a good chance of being satisfied with the decision in the long run. I'll try to cover as many types of mortgage borrower as I can.

Short-term trackers

At today's prices, I don't favour short-term trackers of two or three years. The risk with these is that, being 1.5 to 2.5 percentage points above the Bank of England's base rate, they will quickly cost a lot if interest rates start rising quite fast.

However, one size certainly does not fit all. These are sensible buys so long as they are substantially cheaper than your current SVR and you are either willing to overpay hundreds per month, or to save that money in an easy-access savings account or ISA. You must also be confident that you can afford much higher interest rates, were they to rise substantially over the next few years.

Using lovemoney.com's mortgage search, here's what you can expect from two- and three-year trackers. I have arranged them with two-year deals above three-year deals, and then by the cheapest going to the most expensive, over the length of the deal, covering a range of different loan-to-value sizes:

Based a £100,000 remortgage.

*All fees including arrangement, valuation, transfer and exit fees for when you move to your next deal.

**Loan to value. This is the maximum amount of the loan the lender will give you compared to the current value of the property. A £60,000 loan on a £100,000 property is 60% LTV.

Lifetime trackers

While we cannot know which mortgages will ultimately end up the cheapest, I can't see a sensible reason for any group of borrowers to take out any trackers lasting four years at current prices. I can also find no five-year or ten-year tracker deals on the market at the moment.

However, some of the current lifetime trackers are even better than the short-term ones, because they are no more expensive, and even a bit cheaper, and yet they come with no early-repayment penalties, making them more flexible for the same sort of price:

Long-term fixed-rate deals

If you go for short-term fixes now because of the low rates available, your decision when your next deal expires might not be so easy. But lock into a ten-year fixed rate with Yorkshire Building Society instead and you are guaranteed to pay a fantastic rate that most people have not managed to average over a whole decade at any time in the past thirty years. The existing five-year deals are at great prices too. A little cheaper, but not quite the same due to the extra risk that shorter fixes entail.

With the base rate so low, I think there will rarely be a better chance to lock in such a good rate for so long. I've written more about these under-rated mortgages in Pay 5% on your mortgage for a decade.

I think it goes without saying that you must consider your personal circumstances before locking yourself into any very long deal that has early-repayment charges.

Short-term fixed-rate deals

I've left short fixes till the last of the deals, because I think that these are probably suitable for a relatively small smattering of people who are in special, individual or odd situations.

Although the prices are good for their length, the apparent safety they give can be a bit of an illusion, because mortgages are a long-term commitment. When you leave your deal at the other end, the prices and mortgages available could be rather different, and you may have even more anxiety about what sort of mortgages to go for. I believe this makes them less suitable for most people than the other options I have presented.

Even so, for the oddballs out there, here they are:

Sticking with your SVR

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If you have a good rate on your SVR, even if there are some deals a little cheaper, it is perfectly sensible to sit on it for the extra flexibility it gives you, provided you make overpayments or save extra money each month in a savings account.

The thing to remember here is that even a whiff of inflation could see the best fixed deals gone before your application is processed. By the time you realise that the interest-rate hawks were right, tens or hundreds of thousands of borrowers could have taken the best deals and you will miss the boat on the best longer-term fixes. If you're unsure at any time, consider getting off your SVR early and into a long fix, where you can't easily go too wrong.

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