Check your mortgage rates... now!

Mortgage rates are at historic lows ― so Money Saving Expert Martin Lewis is here to urge EVERYONE with a mortgage to check their rate now as you may be able to save £1,000s a year.

For mortgage holders the silver lining to the teetering world economy is that the threat of imminent interest rate rises has gone. And the cost of mortgages has plummeted to an historic low. According to Moneyfacts, the average fixed rate is now 3.43% ― and the cheapest deals limbo far under that, some nearing 1%. Big savings are possible as the following example shows..."I followed your remortgage tips and formula and now pay £431 LESS PER MONTH by changing my HSBC mortgage deal" ― £5,000 a year saved.

So here’s what you need to do:

1. How to check your current deal

A mortgage is the biggest expenditure most people have, so I'm always slightly surprised that when asked, not everyone knows their rate and details. So check now that you know...

a. The current rate: And monthly repayment and amount outstanding.b. Type: Is it a fix, discount, tracker or on a standard variable rate (SVR)?c. Deal deadline: If it's a short-term deal (eg, a two-year fix), when does it end?d. Term: How long is the term, eg, 25 years, and when will it be fully repaid? e. Penalties: Are there any early repayment penalties?f. Your loan-to-value (LTV): What proportion of your home's current value is borrowed. Eg, £80,000 outstanding on a £100,000 property is an 80% LTV. The lower the LTV the better deal you can get.

Everyone should check, but not everyone can save by remortgaging (shifting to a better deal). Yet armed with information, you can then see if a better deal is available.

2. Benchmark your cheapest deal at speed

Now you know what your rate is, it's important to see what's out there for you. The easy way to start is to use a comparison tool, but ensure it’s one that includes direct-only deals not just the ones available through brokers. These include Martin’s Mortgage Best Buy Comparison Tool – or Totally Money’s Mortgage Comparison.

Just to give you an example of the savings. Someone on a typical Standard Variable Rate at 4.85% would be paying £10,370 a year on a £150,000 repayment mortgage (25-year term).

The lower the proportion of your home’s value you’re borrowing (known as loan-to-value or LTV), the better the deals available.

Yet to give you the scale of savings possible, at the time of writing there’s a two-year fix with 65% LTV (1.29% rate + £975 fee), which is £7,510/year (incorporating the fee over the two years), or if you’ve less equity a two-year fix with 85% LTV at 2.5% (£250 fee) at £8,200/year. Or to fix even longer, there’s a five-year fix at 75% LTV (2.69% rate + £995) at £8,440/year. Alternatively, there’s a two-year tracker at 85% LTV (1.75% rate and £995 fee) at £7,910/year.

3. Fees have a huge impact too

It's not just about rate, the smaller your mortgage, the bigger the impact of fees.

For example, if you had an £80,000 mortgage at 65% LTV with a 1.29% rate and an arrangement fee of £975, it would cost you around £4,200/year (spreading the fee over the two years). Yet actually a mortgage with a higher rate but a lower fee, such as a two year 1.59% fix with a £323 fee from the same lender, can work out cheaper in this case at around £4,100 a year.

4. Finding a top deal's just the start ― then you've got to get accepted

The days when lenders would fling out deals to all and sundry are long gone, getting accepted is now the challenge. There are two key elements to this...

· Is your credit score good enough? It now plays a much bigger role. Just a few of the key tips include: a) Never withdraw cash on credit cards; b) Avoid payday loans; c) Avoid other applications, eg, credit card, contract mobile, just before applying; and d) Check your credit file for errors.

· Are the repayments affordable? New rules launched last year mean you need to prove you can afford it. Generally they won’t just look at whether you can afford the current rate but rather whether you can afford repayments if rates were 6% or 7%. So even though you already have a mortgage, ensure you’re minimising your outgoings in advance to show that you can afford the repayments.

5. Mortgage brokers can help boost acceptance

You can, and often should, use a mortgage broker to advise you and help you find the right deal.

They have info that's not available to consumers ― such as lenders' credit and affordability criteria ― so a good broker can match you to the right deal to get accepted. It also offers an extra layer of protection if things go wrong, and they carry more clout with lenders to ease acceptance. To find a broker local to you use Unbiased or VouchedFor, or there are big national brokers like London & Country, which is fee-free (it gets commission from lenders if you get a mortgage) and also operates by phone. Alternatively there’s John Charcol and Which? Mortgage Advisers.

However, it is worth noting that some lenders, such as Yorkshire Building Society, Tesco Bank and HSBC, mainly only sell their mortgages direct to the public, cutting brokers out. As brokers only need advise you of the best deal from all available to them, many don't include these. Hence why using the comparison sites to check nothing is missed is important.

6. Should I get a fix or get a tracker/discount?

With a fixed mortgage, the amount you repay is, er, fixed so it's like buying an insurance policy against possible rate rises. Variable deals move with UK interest rates (and sometimes just at the provider's whim). Currently you only pay a touch more to fix.

It's very difficult to predict future interest rate moves, even top economists are singing a different tune now from a year ago ― saying it'll be early 2016 (or even later) before UK rates start to rise, and there's even the possibility they may fall before then.

While you can't predict the market, you can examine your own situation. The more important the security of knowing exactly what you'll pay is, the more you should hedge towards fixing (and fixing for longer). The more you care about cracking the perfect deal, the more you should hedge towards short-term trackers.

7. Rates are cheap now ― could they get cheaper?

The Bank of England Governor recently said: "Were these downside risks to materialise, the committee could adjust the pace and degree of bank rate increases, expand the asset purchase facility, or cut bank rate towards zero." That's banker gobbledegook for, if we get extreme deflation (ie, prices across the economy seriously falling), the UK base rate could be cut. Yet the rate mortgage fixed rates are set at anyway already incorporates that to an extent ― so quite how much it's possible to drop is debatable.

And remember, if switching now would save you, waiting means you miss out in the meantime, so it's a balance.