With fluctuations in mortgage interest rates leading to an all time low, remortgaging property is becoming an increasingly popular option among borrowers. Remortgaging helps to lower interest rates and allow using the increased value of the home for needs requiring urgent cash or for alternative investment options. The variety of available remortgage products fall under any one of the following categories.
Standard Variable rate remortgage (SVR) – This kind of mortgage is based on the Bank of England's base rate for lending. Usually all main lenders like banks and other financial institutions set their standard variable rate or SVR at 2% above the Bank of England's base lending rate. This means if 5 is the base rate.25% the lender's SVR would be 7.25%. The SVR follows the base rate as it fluctuates up and down. However by shop around a borrower with a good credit rating is sure to get a better rate for his remortgage.
Discounted variable rate remortgage- In such a mortgage a lender, to lure a borrower, provides a discount on the SVR for a specific period, usually between 2 to 5 years, after which the rate bounces back to the SVR. For example if the SVR is 2% above the base rate, the discounted rate may be just 1.5% or 1.25% for the discount period. The rate would fluctuate with the base rate but borrower will be paying less than the SVR during the set period.
Fixed Rate remortgage- This is a type of mortgage where the interest rate remains fixed for an agreed period before reverting to the SVR. This period generally ranges between 1 to 5 years but could be longer depending on the particular mortgage deal change. The advantage of this type is that the borrower knows exactly what he has to pay as payment every month with no surprises in the store as in the case of other mortgage types. On the downside, it could result in a higher interest rate if market rates go down, as the rate agreed to remains fixed. In addition, an early redemption of the mortgage loan could mean a substantial higher financial penalty.
Capped rate remortgage- Capped rate remortgages are provided to give the best of variable and fixed rate deals with two drawbacks. One, they carry a reliably higher rate of interest and two, they are saddled with a one-time administration fee. This is because they give the borrower a better cushion against rising interest rates. Capping the upper limit ensures that the borrower does not pay more than the capped rate even if the rates cross the capped level also allowing him the benefit of lower interest rates in case interest rates drop.
Flexible Remortgage – These permit the borrower to adjust repayments according to circumstances. If the borrower has extra cash he can save money by paying more for the early clearance of the mortgage. Or, if there is a scarcity of funds