Easy Guide On Choosing The Right Remortgage

By Author: Lucy Carter
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Remortgaging, in other words refinancing your existing mortgage, is a great way to consolidate your debts, finance home improvements or take advantage of lower interest rate offerings. Since the marketplace is highly competitive, there is a wealth of deals to choose from. Be sure to shop around and compare offerings - some companies even entice customers with free home insurance, cashbacks and other value adds.

The following guide will help you understand remortgages to find the deal that best fits your needs.

Main Reasons to Remortgage

Debt Consolidation

The rather scary fact is that UK citizens are currently in debt more than ever before, and the present economy certainly isn't helping us climb out of the hole. A remortgage of your existing loan is an easy way to ease the pressure of debts and consolidate them through a simplified monthly mortgage payment.

Equity Release

In short, positive equity amounts to the difference between the worth of your house and your outstanding mortgage balance as its current value. With house prices rising at an alarming rate, an equity release mortgage ...
... will allow you to both pay off your current mortgage and free up extra capital. It's often cheaper to raise money this way than to take out a personal loan.

Savings on Lower Interest Rates

Loan providers often offer lowered interest rates to entice new customers, so it's a good idea to keep your eye on fresh offerings in the marketplace. If you're worried about unexpected hikes in your interest rates which would put a strain on your bank account, you can always opt for a fixed rate remortgage which is immune from fluctuations.

Types of Remortgages

Standard Variable Rate (SVR)

This is the standard rate of interest that a lender charges for your remortgage loan. The amount is generally calculated at 1%-2% above the Bank of England's changing base rate, meaning it will be subject to ups and downs, sometimes on a monthly basis.

Fixed Rate

This remortgage deal gives you a set interest rate that won't shift with the changes in base rates or your lenders SVR. You will typically get this fixed interest for a period of 2-5 years.

Capped Rate

These types of remortgages are similar to fixed rate deals. Your rate of interest will be calculated according to the loan provider's standard variable rate, but the difference is that a maximum interest or cap is set. This means that your monthly repayments might go up if the SVR increases, but only up to a fixed amount.

Capped & Collared Rate

The only difference between this financing deal and the capped rate mortgage is that the interest rate applied to your debt is also capped along with the cap on the SVR. This means the rate you pay won't fall below or above a set level for an agreed term.

Discounted Rate

Simply put, with this option you will be offered a discount on your lender's standard variable rate for a set amount of time. The norm would be 2% - 3% below their SVR.

Tracker Remortgages

This will provide you with a rate of interest that is set slightly above the Bank of England's base rate, but usually just below your lender's standard variable rate. The implications of this are that if the base rate goes up or down, your tracker rate remortgage payments will move accordingly, even if your loan provider makes no changes to their SVR. This option is thus similar to a variable rate remortgage.

Flexible Repayment

Flexible remortgages enable you to make underpayments, overpayments and even at times take a break from your monthly repayment. This means they are highly suitable for people who don't have a fixed monthly salary.

Off Set

This deal works in the same way as a savings account which is linked to your mortgage account. In other words, instead of earning interest on your savings, the money is used to reduce the balance of your mortgage loan.

Bad Credit Remortgages

This option is designed for those who've been refused a mortgage elsewhere due to circumstances that resulted in a poor credit rating.

Long Term

This allows you to make your repayments over a longer period of time; which puts less strain on your monthly outgoing expenses. There is a wealth of different remortgages of this type to choose from, where you can combine elements of the above options.

Cash Back

Rather than being a remortgage in itself, the cash-back option is a special offer associated with certain types of remortgages. You will receive your cash-back (ranging from a few hundred to several thousand pounds) on completion and acceptance of your remortgage application.

The above information lets you get to grips with the types of remortgage options available on the marketplace as well as the reasons for deciding to refinance your existing loan. Above all, it's crucial to weigh your particular needs to make sure you make the right choice
CSean Raston - economics student and expert in the remortgage process.