Remortgages

Types of Remortgage

A wide range of remortgage alternatives is available from financial institutions, so it pays to do your research to make sure that you end up with the best mortgage product for your circumstances. Common types of remortgages include:

Standard Variable Rate (SVR): SVR is the benchmark mortgage product used for making comparisons. When a mortgage promotional offer reaches the end of its initial term, the mortgage usually reverts to the SVR. This is the rate that you should use to compare any remortgage offers; if the proposed monthly repayments are higher than for an SVR Mortgage, you should almost certainly avoid it.

Discounted Rate: Many lenders offer mortgages where the rate of interest is a fixed number of percentage points below the SVR for a limited period. Over time, monthly repayments rise and fall with (but remain below) the SVR. The longer the discount period lasts then the smaller the discount rate is likely to be. At the end of the discount period, the mortgage rate will normally change to the SVR.

Fixed Rate: This type of mortgage is where the rate of interest is fixed for a preliminary period (often 2 years, sometimes up to 5 years). At the end of the period, the rate will normally revert to the SVR. Because monthly repayments do not change for the initial period, a fixed rate mortgage allows you to budget accurately, which is often important when a mortgage is first taken out. The only real disadvantage of a fixed rate mortgage is if interest rates fall during the mortgage term. You might then find yourself paying more than you would have done for a variable rate mortgage.

Capped Rate: The interest rate charged on a capped rate mortgage is guaranteed not to exceed a certain level, during the initial period (usually 2 years). In addition, monthly repayments will be reduced if interest rates fall during that initial period. However, in many cases, lenders may offer more competitive deals, with lower monthly repayments on fixed rate mortgages than they do on similar capped rate mortgages.

Summary
The most common types of remortgage are:
Standard Variable Rate (SVR);
Discounted Rate;
Fixed Rate;
Capped Rate.