What types of
remortgage are available?
The mortgage
market changes daily and it
is therefore advisable to do
your home-work to see what
is currently available.
Below are the typical types
of
remortgage available in the
UK.
Variable rate
mortgages
With a
variable rate mortgage the
interest may go up or down
during the life of the
mortgage depending on what
the bank base rate is doing.
The benefits of a variable
rate mortgage are that there
is not usually a ‘tie in’
period so you can repay the
mortgage whenever you wish
and if interest rates go
down you will get the
benefit. However, if
interest rates rise you will
pay more.
Fixed rate
mortgages
With a fixed
rate remortgage the interest
rate is fixed for a set
period of time – usually 2,
3 or 5 years but sometimes
longer. During the fixed
rate period the interest
rate will not go up or down
whatever the bank base rate
does. There is usually a
penalty clause which applies
during the fixed rate in
which you have to pay a lump
sum to the lender if you
want to repay the remortgage
during the fixed rate
period. So you are
effectively ‘tied in’ to the
remortgage for the period of
the fixed rate and sometimes
longer. You have the
advantage of knowing how
much your monthly payments
will be during the fixed
rate, but you are tied to
the remortgage unless you want
to pay a penalty and if
interest rates go down then
you will still pay the
higher rate.
Tracker
A tracker
remortgage tracks a stipulated
bank base rate and usually
guarantees not to rise
beyond a certain percentage
above the bank base rate.
This means that your
mortgage can go up or down
depending on what the base
rate does. You have the
benefit of paying less if
the mortgage rates go down
but you will pay more if
they go up.
Interest only
mortgages
If you are
trying to keep your monthly
costs down you may opt to
pay only the interest on
your mortgage. This means
that at the end of the
mortgage you will still owe
the amount you borrowed ‘the
Capital’. Most lenders will
insist that you take out a
‘repayment vehicle’ i.e. an
insurance policy, pension
etc. to repay the remortgage
at the end of the term.
Capital
repayment mortgages
With a
capital repayment mortgage
you pay the interest plus
part of the loan off each
month. In the early years it
is mostly the interest which
is paid but over the life of
the remortgage you gradually
reduce the loan until it is
all paid off at the end of
the term.
Self-Certified Mortgages
With a
self-certified mortgage the
lender trusts you to certify
how much income you earn.
This can be beneficial to
self-employed people or
people whose income cannot
be certified in the usual
way. Few lenders now offer
these types of mortgages and
they usually cost far more
in interest than a standard
mortgage.
Equity
release
This type of
mortgage was set up so that
home owners could release
equity from their properties
in order to raise funds to
supplement their income, pay
for home improvements or
residential care etc. The
idea is that the funds are
advanced by the lender and
the money is re-paid from
the proceeds of sale of the
property once the home-owner
has passed on. The home
owner needs specialised
advice on this type of
mortgage and CMS can provide
a quotation for this. Please
call us on 0845 060 33 55
for a quote.
