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Types of remortgage deals



Types of remortgage deals

There are a range of different remortgage products available on the market, and it’s possible to shop around for the type which suits you best.

In essence, these types of deals could be no different to the first mortgage you take out. But depending on your financial situation at the time that your first, or subsequent, mortgage deals have come to an end, as well as the state of the mortgage market itself, you may want to consider a different type of remortgage.

Remortgage deals: fixed-rate mortgages

With this kind of mortgage you agree to pay a set rate of interest on your mortgage for a fixed period of time. Although there’s no limit on how long you can fix your interest rates for most deals tend to be for two, three or five years. Although other options are available.

Pros:

  • Certainty – this kind of mortgage allows you to know in advance what your repayments will be over a set period of time
  • A fixed interest rate will normally be lower than a lender’s standard variable rate

Cons:

  • You would not benefit from any falls in interest rates
  • You will normally have to pay an early repayment charge if you want to end the deal early within the fixed period

Remortgage deals: tracker mortgages

These mortgages will ‘track’ the Bank of England’s base rate at a set margin e.g. base rate +2%. If the Bank of England base rate decreases, your repayments will go down. If it increases, your repayments will become more expensive.

Pros:

  • You will benefit from any drops in interest rates

Cons:

  • You will end up paying more if interest rates increase

Remortgage deals: discount mortgages

These mortgages offer a set percentage discount from the lender’s standard variable rate (SVR), for example 1% lower than SVR for a fixed period of time. Most deals will last for two, three or five years.

Pros: 

  • You will be paying less than your lender’s SVR
  • Potential for further savings if your bank cuts its SVR

Cons:  

  • If SVR increases, so will your mortgage repayments

Remortgage deals: offset and current account mortgages

These kinds of mortgages work by combining the money you owe on your mortgage with money in your savings and/or current account and using the money to ‘offset’ the amount of interest you repay on it.

So if, for example, you have £20,000 in savings and owe £200,000 on your mortgage, you only pay interest on £180,000 of it. You will still make a standard repayment every month but any extra savings you have could help you to pay your mortgage off quicker. Alternatively, you can use it as a facility for further borrowing.

Pros: 

  • As you pay less interest, offset mortgages can help reduce your monthly repayments
  • Offers a flexible approach to managing your mortgage

Cons: 

  • You won’t receive interest on any savings offset against your mortgage
  • You have to manage your money very carefully. Spending your savings will mean paying more interest on your mortgage

Why not let Which? Mortgage Advisers do some of the hard work for you, and make sure you’ve got the very best mortgage for you.


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