Types Of Remortgage Products Available

When the time comes to shop around for a remortgage product, it can be overwhelming to choose among the many types of mortgages available. It is beneficial to take the time to educate yourself on the different products so you are prepared to voice your preferences when you sit across the table from a bank or mortgage broker.  Learn about a number of the basic mortgage types right here to get you started.

Fixed Rate Mortgage

As the name suggests, fixed rate mortgages offer a set rate of interest and a consistent monthly payment throughout the life of the loan. Most fixed rate mortgages come in two, three, five, ten or twenty-five year terms. At the end of the fixed rate term, the mortgage will automatically revert to a standard variable rate product, unless the borrower remortgages to a different type of loan at that time.

Pros of a Fixed Rate Mortgage

• The rate and payment amount are fixed for the term, making it easy to budget.
• If interest rates rise, your lower rate on your mortgage is secure.

Cons of a Fixed Rate Mortgage

• If interest rates fall, your higher rate on your mortgage doesn't change.
• Most banks tend to charge you a fee to book your rate and early repayment charges for paying off the loan early.

Standard Variable Rate Mortgage(SVR)

The standard variable rate mortgage is the mos common type of mortgage product in the UK. While most banks charge about two points higher than the Bank of England base rate, the actual rates can vary widely between banks. The final rate fluctuations are at the discretion of the bank, but account holders do benefit when rates fall, even if the mortgage rates don't bottom out quite as low as market rates might.

Pros of an SVR Mortgage

• If interest rates fall, your mortgage rate will go down as well.
• This is a common mortgage product with relatively simple terms.

Cons of an SVR Mortgage

• If interest rates rise, your mortgage payment will also go up.
• Banks don't always give you the benefit of full rate drops when rates decrease.
• Your mortgage payment may go up periodically, making it challenging to budget.

Tracker Rate Mortgage

These mortgage products work in a similar fashion to the SVR mortgage, but the rates are tied directly to the Bank of England base rate. When the base rate goes up or down, your mortgage adjusts accordingly. This is becoming a popular mortgage product wit lenders and borrowers alike.

Pros of a Tracker Rate Mortgage

• The rate is directly tied to the Bank of England base rate, so you can easily track what your interest rate will do next.
• The loan is becoming more popular, so more banks are offering their own tracker packages. 

Cons of a Tracker Rate Mortgage

• If the Bank of England base rate goes up, so does your interest rate and monthly payment amount.
• The differing payments amount can be more challenging for predictable budgets. 

Capped and Collared Rate Mortgage

This is also similar to an SVR mortgage in that the rates fluctuate according to market trends. However, the loan also has a floor and ceiling rate, ensuring that your loan does not rise or fall beyond a particular threshold. Some borrowers also opt for a capped mortgage, which only restricts increases on interest rates. Most of these mortgages are available for a fixed term, like fixed rate mortgages offer.

Pros of Capped and Collared Mortgages

• You enjoy a mortgage that follows market trends without the worry that the interest rate will get too high.
• If interest rates fall, you enjoy a lower interest rate and money in your pocket from savings on your monthly payments.

Cons of Capped and Collared Mortgages

• If the interest rate falls below your collar, you don't get to reap the advantages of the bargain basement rate.
• When interest rates rise, your monthly payment amount does as well.

Discount  Mortgage

This type of mortgage will usually offer you a reduced rate for the first year or two and then revert to a rate more in line with current market trends. A discount mortgage is commonly linked to an SVR or a tracker rate mortgage, so your rate fluctuates based on the Bank of England base rate. While the initial rate may be very attractive, prepare yourself for sticker shock when the special deal expires.

Pros of Discount Mortgages

• The initial interest rate is very low, so you save money at the beginning of the loan.
• The mortgage is linked to the popular SVR or tracker rate mortgage in most cases.

Cons of Discount Mortgages

• After the initial discount period, your interest rate and monthly payment amount may rise drastically.
• Since the mortgage is similar to a variable rate mortgage, rising rates will also result in a larger monthly payment.

Flexible Mortgage

A flexible mortgage gives the borrower the ability to overpay or underpay as he wishes. There are guidelines in place for these loans that dictate how and when you can adjust your payment schedule to meet your needs.

Pros of a Flexible Mortgage

• This product allows the borrower to overpay or underpay in accordance with her budgetary needs.
• Some allow you to take a holiday from payments for educational expenses or other situations.

Cons of a Flexible Mortgage

• The rates on these products are generally not as competitive as other mortgage products.

Cash Back Mortgage

This type of product provides you with additional cash on top of your loan balance. The cash can be used to consolidate other debts under a single loan product with a lower interest rate. The additional funds can also be used to finance a holiday, education or home improvements. The amount of cash you can get will depend on the type of loan you choose and the amount of equity you currently own in your home.

Pros of a Cash Back Mortgage

• The cash sum can come in handy for a variety of situations.
• The money is financed over a long term with a relatively low interest rate.

Cons of a Cash Back Mortgage

• This type of mortgage typically comes with a higher interest rate and repayment fee than other products.
• The money is financed for a longer period of time, which means you may pay more overall.

Current Account Mortgage

This type of mortgage combines your current account and your mortgage into a single package. You still make a standard monthly payment to your mortgage each month, but the balance in your current account acts as an offset to your mortgage balance so you can pay the mortgage off more quickly. You can also easily add other debt like credit cards to your loan balance, so you can pay them off at the lower interest rate.

Pros of a Current Account Mortgage

• Your bank products are located at the same institution, making it easier for record keeping.
• If you deposit more than you withdraw out of your current account each month, you should be able to pay off your mortgage loan much quicker

Cons of a Current Account Mortgage

• Some people don't like the idea of being overdrawn in their current account all the time because of their mortgage loan.
• The interest rates on these loans are usually higher than other types of mortgage products.

Offset Mortgage

This is similar in theory to a current account mortgage, only an offset mortgage keeps the funds in separate mortgage, savings and current accounts. The balance in your savings and current account is used to offset the outstanding balance on your mortgage loan. These funds serve as an overpayment that helps you pay down your mortgage balance more quickly.

Pros of an Offset Mortgage

• Since the money is kept in separate accounts, record keeping is much easier.
• The additional overpayments add up at the end of the year, allowing you to pay off your mortgage quicker.

Cons of an Offset Mortgage

• If you have to withdraw funds from your savings account, the benefits of the offset mortgage are negated.

Like the current account mortgage, the interest rates on these products are usually higher.