Choosing the right remortgage deal
Choosing the right remortgage deal
When considering what remortgage to choose, you will want to consider the deals on offer to you and the relative advantages these present to your circumstances. Mortgages usually offer one (and sometimes more) of a number of ‘core’ features, listed below:
A fixed rate mortgage charges a set rate of interest for a predetermined period, and then usually reverts to the lender’s SVR. This kind of loan offers you the security of knowing how much you’ll be repaying during the initial period, and can make budgeting much easier.
A capped rate mortgage offers similar security to a fixed rate – since the rate you pay during the capped period won’t exceed the capped rate – as well as the chance to benefit from any fall in mortgage rates within the capped period. However, the benefits of capped rate mortgages usually come at a price: rates are often higher than on lenders’ comparable fixed products.
A discount mortgage offers a reduction of a given amount on the lender’s SVR and if this rate changes, the rate you pay will fluctuate in line with it. Usually, the shorter the discount period is, the greater the discount. After the discount finishes, the loan reverts in most cases to the lender’s SVR.
Tracker mortgages give borrowers the certainty of knowing the rate they pay will move automatically in line with Bank Base Rates. This allows the borrower to benefit straight away from any cuts in these rates, even if, as is often the case, the lender delays reducing its SVR to reflect the reduction. Many trackers also offer flexible terms.
A cashback mortgage pays an upfront lump sum, thereby allowing a borrower to pay for, say, home furnishings or to repay credit card debts, or to put down a deposit. The rate paid is most often the lender’s SVR.
A droplock mortgage is a discount or tracker mortgage which has an option to switch to a fixed rate at any point within the initial period without paying early repayment charges. This provides an ideal way to benefit from base rates when they’re low, with the option to switch easily to the protection of a fixed rate should interest rates then look set to rise significantly.
In addition to the core features listed above, mortgages can offer one or more additional features, such as:
A flexible mortgage allows you to vary your monthly repayments to reflect your changing financial circumstances. Depending on the flexibility of the product, you can, without charge:
Over – or under-pay, and/or
Repay lump sums, and/or
Take a payment ‘holiday’ to allow you to fund a large expense, such as a wedding or new car.
Payment holidays and underpayments are, of course, conditional – usually on the borrower adhering to, or exceeding, a predetermined repayment schedule. And many deals, even if not fully flexible, still offer the ability simply to overpay.
With a current account mortgage, your current account and mortgage are effectively merged, and your salary can be paid into your mortgage account. Interest is calculated on a daily basis, and when you pay money into your account the overall loan size is lowered, thereby reducing the amount of interest paid.
Like current account mortgages, offset mortgages allow you to offset the balance of your mortgage against any funds in a savings and/or current account held with the same lender, and pay interest (calculated on a daily basis) on the net balance between the accounts.