Are you’re reading this because you’ve decided to remortgage? Or are you thinking the time’s right to remortgage? Then good for you. We discuss all remortgage types or products in this news article and listed their respective pros and cons..
But first you need to navigate the different types of remortgage products available. The choice can seem overwhelming. So it’s worth understanding the differences before you go about applying.
This summer saw more UK home buyers rushing to remortgage their properties than for decades. In fact it was remortgage approvals driving the mortgage market in August (the latest figures available). This was rather than new-buyer mortgages.
Far-sighted homeowners are taking advantage of the competitive market for remortgaging right now.
Yes there was the rise to 0.75% in the bank rate this August. But remortgage deals are still at bargain-basement levels. This is due to the stiff competition for new customers between banks.
Most people remortgaging are doing it for the same reasons:
- Availability of historically low remortgage rates
- Lower costs than paying the SVR (standard variable rate) they’ve defaulted to
- Fear of further rate rises by the Bank of England
- Concern about the instability of the economy due to Brexit
- Security in locking in monthly repayments
Hand writing Time to Plan concept with blue marker on transparent wipe board.
What Remortgaging Product should You Choose?
Let’s start by explaining what remortgaging is. It’s what happens when you change the mortgage you currently have on your property. You can do this by switching to a new lender. You can also transfer to a different deal with your existing lender.
In most cases, the first option will be your cheapest route. This is because lenders right now are going out of their way to attract new customers.
You also have the choice of an interest-only or repayment remortgage. Interest-only mortgages are the type where you only pay the interest on the debt. You don’t pay off the original loan. These are now difficult to get unless you have clear proof that you have or will have the funds to do so.
Fixed Rate Remortgage
Don’t get the name confused. Fixed rate remortgages are no fix-up. They are, in times of economic uncertainty, a good remortgaging product to bank on. That’s if you want to batten down your monthly outgoings.
Fixed rate remortgages give you an immovable rate of interest. That means a consistent monthly payment throughout the period the rate is fixed. Fixes are available two, three, five, ten or 25-year terms. At the end of the deal, the remortgage will automatically default to the lender’s SVR. (This is almost always more expensive).
Pros and cons
- The rate and payment amount get locked for the term so you have more control over your monthly budget
- If interest rates rise, your payments remain unaffected
- If interest rates drop (unlikely, however, at this moment in time), you won’t feel the benefit
- If you want to end your deal then you’ll likely have to pay an early repayment charge.
Standard Variable Rate (SVR) Remortgage
The standard variable rate remortgage is the bog standard type of remortgage. With this, you’ll usually pay more than the base rate(typically by around 2%); this varies according to the lender. The difference between the base rate and your SVR gets decided by your lender.
Pros and cons
- If interest rates drop, you’ll probably pay less as your mortgage rate will reduce
- It’s a straightforward mortgage product so you know what you’re getting
- If interest rates go up, you’ll pay more as your mortgage rate will increase at your lender’s discretion
- The base rate might drop. But depending on the economic situation, your lender may not give you the full benefit
- SVRs can make it tricky to budget from month to month
Tracker Rate Remortgage
Trackers are not very different to SVRS but there’s a subtle distinction. They’re linked to the base rate, so your lender guarantees how much more you’ll pay above the base rate.
Pros and cons
- You can follow the base rate to know how much you’re going to be paying that month
- If the base rate goes up, your monthly payment will increase in line
- You get a little more certainty than with a SVR but you are still at the mercy of base rate changes
Capped & Collared Rate Remortgage
This is a long name for a product that’s really a fusion of the SVR and tracker remortgage. The only difference to these is that there’s an upper and lower limit you’ll pay. This depends on the increase or decrease in the base rate.
Pros and cons
- You can get greater security over your outgoings.
You know that if the interest rate soars, you’ll only pay up to a certain percentage point higher
- If interest rates drop, your monthly payments will do too but only to a certain point
- If the interest rate plummets below your ‘collar’, you won’t get the full benefits of the base rate drop
- When interest rates go up, your monthly payments will too, but only up to your ‘cap’ rate
These deals usually give you a discount from the SVR. This rate cut doesn’t last long however. It’s usually for two or three years.
Pros and cons
- It is a discount so will usually be cheaper than many other remortgaging products
- If interest rates go down, your rate may drop too (but check your small print)
- Because it’s linked to the SVR, you won’t always get the benefit any rate changes. As with the SVR, it’s at the discretion of your lender.
These are the main types of remortgage product. Before you explore further, always ask yourself these questions:
Is there a charge to exit my existing mortgage and if so, is it worth it?
What is the arrangement fee to set up my new mortgage?
Will I be accepted in my current financial situation? Find out more about the remortgage affordability tests here.
If you need help in finding the right remortgaging product for you and navigating your options, we’ll be happy to help you here.