Who Needs This Insurance
Choosing a remortgage is essentially no different to
a mortgage. Below is a very brief summary of the key
areas to consider :
Type of interest rate
There are a wide range of different types of interest
rate to choose from, each of which is geared to different
individual circumstances and attitudes to what will
happen in future. Briefly, the main ones available are:
- Variable/tracker - The interest
rate payable on variable and tracker mortgages will
rise and fall in line with some other measure, usually
the Bank of England base rate. The lending rate is
likely to be at a set level above the prevailing base
rate.
- Fixed - Fixed rate mortgages guarantee
a specific rate of interest for a set length of time.
Most commonly, this is for between one and five years,
though it can be as long as ten, fifteen or even 20
years. Once the fixed period is over, borrowers then
revert to paying the prevailing Standard Variable
Rate.
- Discounted - With a discounted
rate mortgage, the Standard Variable Rate of a lender
is temporarily reduced by a set amount for a specified
period, usually from one to five years. Once the discounted
period is over, borrowers then revert to paying the
prevailing Standard Variable Rate.
- Capped - The interest rate on
a capped mortgage follows the lender's SVR up and
down, with the key difference that the rate is guaranteed
not to go above the level at which it is 'capped'.
This cap will not last the entire life of the mortgage,
but it is common to find rates that are capped for
five years or more.
Repayment method
You will have to choose between a repayment mortgage
and an interest-only mortgage:
- Repayment mortgage - This simple, low risk method
involves making a single payment to the lender each
month, part of which will pay interest on the debt,
with the remainder reducing the amount owed.
- Interest-only mortgage - Interest is paid on the
full amount of the loan for the whole term of the
mortgage. While the repayments to the lender are lower,
the borrower will need to invest in some other product
in order to ensure that enough money is generated
to pay off the loan at the end of the term. The three
most common forms of investment used to accompany
an interest-only mortgage are endowments, ISAs and
pensions.
Type of product
Most people opt to take out a standard loan with a mainstream
lender, but there are many people for whom this is not
suitable. Instead, they will choose some form of non-conforming
mortgage, the types of which can include: fully flexible
or current account, 100%, buy to let, let to buy, bad
credit, self-employed, self-certification, self-build
and foreign currency mortgages. Beyond this, product
features such as the frequency of interest calculation,
any incentives offered, loan portability, mandatory
products and the flexibility of the loan are all important
factors that need to be looked at.
Size and term of loan
Deciding how much to borrow and for how long is an important
part of remortgaging and your decision will ultimately
rest on your motive for remortgaging as well as your
capacity to repay the debt. You may wish to extend the
term and minimise your repayments, increase your borrowings
and release more of the equity tied up in your property,
or simply shift to a lower payable rate of interest,
keeping the same completion date and outstanding debt.
Remember that the best deals are usually available when
the amount borrowed is less than 80 percent of the property
value.
Fees and charges
Think about the fees and charges that are associated
with a particular mortgage. If you are likely to become
a relatively frequent remortgage customer, avoid moving
to mortgage that has extended redemption penalties.
Some lenders have introduced stiff penalties to cut
out what is referred to in the industry as 'rate tarting'.
Also look out for application fees, mortgage indemnity
or high percentage lending fees and the general schedule
of charges that the lender employs.
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Remortgages
Guide
