The Many Types Of Remortgage You Have To Choose From
Deciding to take out a remortgage is perhaps one of the biggest financial decisions anyone can make. The consequences of getting the wrong mortgage product could be that you are tied to an expensive contract for a long time. In this useful information guide we explore the different kinds of remortgage products available.
Types of Mortgage Products: The mortgage deal that you pick will ultimately depend on your personal preferences but also on your current financial situation in terms of employment, income and outgoings.
Fixed Rate Remortgages: A fixed rate home loan does exactly as the title suggests. The rate of interest is set for several years; the maximum length of time is normally 10 years. You will normally be able to choose from a range of fixed rates of 2 years, 3 years, 5 years and 10 years. Fixed rate mortgages normally carry with them larger arrangement fees to be paid up front. The bank or building society will normally fix the rate at a certain level above the regular standard variable rate (SVR) when the product is launched, it might be tempting to go for the cheaper variable rate, but as the name suggests, the rate is variable both downwards and upwards.
Bear in mind that when choosing a fixed rate mortgage, interest rates are generally higher on longer term fixed rate deals than they are on short term fixed rates. This is because the lender has to hedge against any significant increases in interest rates during the period of the fixed rate deal. Once your fixed rate ends, your mortgage will normally revert to the lender’s standard variable rate.
Fixed Rate: With a fixed rate mortgage, the interest rate is fixed at a set rate for a set period of time. The fixed rate period can be anything from 2 to 10 years. These types of mortgage commonly have higher fees involved for the privilege of hedging your bets against interest rate increases, and these fees are usually paid by way of a larger arrangement fee.
Discounted rates often have associated booking or arrangement fees and so make sure you take these charges into account when deciding on the best remortgage deal for you. A mortgage broker could help advise you on the best type of deal if you remain unsure.
Capped Remortgage: This is a mortgage type that many people are unfamiliar with. The capped mortgage deal is a product where the rate of interest is capped so it can’t go higher, even if the base rate of interest does. Similar to the fixed and discounted mortgages packages, you are buying a guarantee and that is the expensive part of the product, the fees for this are expensive and normally paid in advance.
Offset Mortgage: Offset mortgages are not as complicated as they sound. They are just a mortgage with a savings account linked to them, so that when your savings accrue they are used to repay your mortgage, which can often reduce the term.
Offset mortgages are an excellent way to clear your mortgage balance more quickly when compared to traditional mortgage products. By linking savings to your mortgage you may be able to pay back your home loan several years earlier than you expected.
If you are looking to remortgage there is certainly plenty of choice as to the types of deal that are available. So, the most important part of the process is to understand the various options that are available to you and to pick the right type of deal for you.
Timothy Frodsham writes for JustRemortgages.com one of the UK’s
top sites for the latest remortgage rates and best remortgage deals.