There are many different types of mortgage to choose from and where one type of mortgage may have been suitable for you at the time of first mortgaging your house, another might now be more suitable as a result of a change in your circumstances.
It is therefore always important to compare the different types of mortgage as well as comparing them to what you have now. There are broadly speaking two main types of mortgage-the fixed and the Variable.
Fixed Rate Mortgage:
This type of mortgage has a set interest rate and lasts for a fixed period – this mostly tends to be 2, 3 or 5 years but sometimes can be for 10 years.
The advantage of this type of mortgage is that it provides you with certainty-you know how much you will be re-paying for a set number of years. In addition, you will are able to fix the interest rate so that it is lower than the Standard Variable Rate (SVR). This in turn can also help you to budget. There is a downside though- you would not be able to benefit from any drop in the interest rate as your rate is already fixed and if you did decide to leave then you would be subject to early repayment charges (ERC)
Variable Rate mortgage:
Here the amount you pay for your mortgage would depend on the current interest rates-so if it goes up then your mortgage rate goes up, if it goes down, then your rate goes down with it. In one sense this lacks certainty because you will not know how much your rate will be in the future, as it will vary. But it may well end up being less than the fixed rate loan. It is usual for the variable rate to be in line with the Standard Variable Rate (SVR) or it can be a Tracker mortgage linked to the Bank of England bank rate (base rate).
Other re-mortgage deals to consider are as follows….
As mentioned above, this tracks the Bank of England’s base rate at a set margin e.g. +1%. Understandably, this will mean that your repayment rate will fluctuate and be wholly dependent on the Bank of England base rate which is something you cannot predict. You will benefit from a drop in the interest rate, but will struggle if there is an increase.
As the name suggests this is a variation to the variable rate type of mortgage whereby you are given a % increase from the mortgage lenders Standard Variable Rate (SVR) for a fixed period of time. It is important to shop around to see the best % discount available. Typically, this may be fixed for a period of 2, 3 or 5 years.
The advantage of this type of re-mortgage is that you will be paying less than your lender’s SVR but the disadvantage is that if the SVR increases you will be paying more.
Offset and Current Account Mortgages:
These type of mortgages function by combining the money you owe on your mortgage with the money in your current or savings account in order to offset the amount of interest you will pay on it. You will pay interest on the amount that remains when you deduct your savings from your mortgage amount.
This will help in reducing your monthly repayments, but you will have to be careful with your savings because you will end up paying more interest if you spend from your savings.
The importance of Independent Mortgage Advice and Our role
Re-mortgaging can be complex with many factors to take into consideration including extra costs that you may have to pay. It is for this reason that it is important you get the best advice possible which will help you to save money in the long term. We will look at the market and look at all of the products on offer taking into consideration your individual circumstances until we find the best deal that will match your requirements. We will then advise you and take you step by step in making and submitting your application up to completion.