The Many Types Of Remortgage Deals To Be Aware Of And How They Are Structured

The Bank of England confirmed earlier in the year that they are intending on increasing the base rate

. This has caused a flurry of remortgages and people trying to find the best deal. In this article, we explore the various mortgage types available and how they can benefit you.

The most basic deal type is the 'Standard Variable Rate', which is the lender's standard rate and the basis of most deals. The interest rate is flexible and fluctuates, and the lender can change the rate at any time without notifying you.

Standard variable mortgages are usually quite flexible in terms of the fact that you do not have to pay any penalties if you repay the mortgage at any time. On the flipside, the base rate affects the mortgage interest rate so if interest rates increase, then your mortgage will too.

Fixed rate mortgages have an initial period whereby the interest rate is preset, so regardless of what the base rate does, your interest rate doesn't change. These are in high demand as the Bank of England announced they intend on increasing the base rate very soon.

When the fixed period finishes, the contract will then go back to the standard variable rate. You should be fully aware, however, that if you enter into a fixed rate contract, you may have to pay an early repayment charge if you pay back the loan before the fixed period ends.

Discounted mortgages are not very common today, however some lenders do still offer them. As you would expect, the interest rate is discounted at the start of the mortgage term before reverting to the standard variable interest rate.

This type of contract have historically been popular with first time buyers, as often finances can be tight when buying a first home, so this allows them to benefit from lower repayments initially. A disadvantage here is that discount mortgages have large fees to pay at the beginning of the deal.

If you have surplus income regularly, for example if you work in sales and get commission on top of your salary, an offset mortgage might be for you. It is a mortgage with a savings account linked to it, and your savings are used to pay off the mortgage more quickly.

As and when you have surplus funds available, you can pay these into your savings and this will be used to reduce the amount that you owe to the lender. Interest is only paid on the amount that you owe. So if you owe 100k, and your savings account holds 20k, you only pay interest on 80k. An offset mortgage can allow you to repay your mortgage far more quickly that other contract types.

It may be an idea to use the services of a mortgage broker, who may be able to explain the jargon to you and help you through the entire mortgage process. Making the decision alone isn't easy, but with their help you'll know you've made an informed choice.

by: Timothy Frodsham

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