How Janet managed to get more and pay less

A remortgage can cut costs and raise cash

When Janet McDowell heard she had got her new job, two thoughts flashed through her brain: "I'll need to go out and buy some decent clothes" and "I'll have to get a new car."

The clothes came first. Then there was the car. At the interview, her new boss had been adamant: while sales reps "on the road" were supplied with company cars, the senior managers were expected to buy their own, claiming mileage as incurred.

For Janet, the choice was simple: a months-old Discovery was the obvious choice, and with her well-honed negotiating skills the price came down to less than pounds 23,000, half in cash and the rest on HP.

Three months later, as she went through her bank statement, Janet realised her mistake. "It suddenly hit me that the cards and car payments were costing much more than the mortgage - the car alone was costing over pounds 500 a month."

Janet's solution was simple and effective: a remortgage that raised enough cash to clear the car loan and still cost less each month than her previous mortgage. "It was the obvious thing to do - but then I've been lucky enough to live in the same flat for nearly 10 years, so there was still plenty of headroom in the equity."

At the time Janet did the deal, her existing pounds 54,000 mortgage at 7.25 per cent - standard variable-rate terms - was costing her about pounds 300 a month after tax relief. With a flat valued at pounds 150,000, a remortgage for pounds 70,000 could easily be arranged at a two-year fixed rate of 4.25 per cent - taking monthly net repayments down to pounds 232 a month - with the car loan paid off completely.

Simon Tyler, a director of Chase de Vere Mortgage Management, says there are two reasons to consider a remortgage: cutting costs and raising cash. In some cases, like Janet's, it is possible to take advantage of rock- bottom fixed-rate deals to combine the two, but he warns: "Think out what it means for the long term. Don't kid yourself that it's a change for life.

"You have to remember that we are at the bottom of the cycle, and most people think that the next move in rates will be upward. You might be able to afford a bigger mortgage now, but will you be able to afford it in a few years time when rates are higher and the benefit of any discount or fixed rate has ended?"

A number of lenders offer special remortgage packages. The Britannia, for example, doesn't charge arrangement fees, normally pounds 295, on remortgages and offers a discounted rate for the first year or a cash lump sum on completion.