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Home » Services » Mortgage Services » Remortgages » Types of Remortgage to Consider

Types of Remortgage to Consider

Ciarán Power

Last Updated: February 2nd, 2024 at 6:31 pm

Table Of Contents

Introduction

Selecting the right mortgage type is a key decision in your homeownership and remortgage journey. At Green Mortgages, we understand the importance of this choice and have included a useful guide to the various mortgage types below.

Repayment Mortgage

A repayment mortgage is the standard choice for most homeowners. Each month, you pay back a portion of the borrowed amount plus interest. This gradual repayment means by the end of the mortgage term, you completely own your home. It’s ideal for those who like the certainty of knowing they’re steadily paying off their mortgage and will eventually be debt-free. Remember, the longer the term, the lower the monthly payment, but the more interest you’ll pay overall.

Interest Only Mortgage

In an interest-only mortgage, your monthly payments cover only the interest, not the principal. The total loan amount remains unchanged over the term. It’s crucial to have a solid plan to repay the loan at the end, such as through investments, savings, or the sale of the property. This type can be suitable if you have a clear repayment strategy and prefer lower monthly outgoings. However, it requires discipline and a robust financial plan to ensure you can pay off the principal at the end of the mortgage term.

Fixed Rate Mortgage

With a fixed-rate mortgage, the interest rate remains constant for a specified period, usually 2 to 5 years. This type is perfect for budgeting, as your monthly payments stay the same, providing peace of mind against interest rate fluctuations. It’s a preferred option for those who value stability in their financial planning. However, the trade-off is that you might not benefit from interest rate drops during the fixed term.

Tracker Mortgage

Tracker mortgages follow an external interest rate, typically the Bank of England base rate, plus a set percentage. Your monthly payments fluctuate with changes in the base rate. These mortgages offer transparency and potential savings when the base rate is low, but they also come with the risk of increased payments if the rate rises. This type is well-suited for those comfortable with a degree of uncertainty and looking to capitalise on low interest rates.

SVR Mortgage

A Standard Variable Rate (SVR) mortgage has an interest rate that is set by the lender and can change at any time. Unlike fixed-rate mortgages, the rate is not locked in and can go up or down, often influenced by changes in the Bank of England’s base rate. Monthly repayments vary accordingly, offering less predictability for budgeting. Standard Variable Rate mortgages typically offer more flexibility with overpayments or early repayment. They are commonly adopted by borrowers after their initial mortgage deal ends, although they are usually not the most cost-effective option. Ideal for those comfortable with fluctuating rates and seeking flexibility, but the unpredictability of payments requires careful consideration of your financial stability and risk tolerance.

Other Mortgage Types

  1. Part and Part Mortgage: A Part and Part mortgage is a hybrid between a repayment mortgage and an interest-only mortgage. In this arrangement, part of your monthly payment goes towards paying off the interest on the loan, as in an interest-only mortgage. The other part of your payment is used to reduce the actual loan amount, as in a repayment mortgage. This means that at the end of the mortgage term, a portion of the original loan will still be outstanding, but it will be less than it would be with a pure interest-only mortgage. This type of mortgage can be a good middle ground for those who want lower monthly payments than a full repayment mortgage but also want to ensure they’re reducing the principal amount they owe. It’s important to have a plan for paying off the remaining balance at the end of the mortgage term, which could involve savings, investments, or other financial strategies.
  2. Capped Mortgage: A capped mortgage is a type of variable rate mortgage, but with a safety net. It has a variable rate, but there’s a cap or upper limit on how high the interest rate can go. This means you’ll benefit if rates go down (like with a standard variable rate mortgage), but you’ll also have the peace of mind knowing that your rate won’t exceed a certain level. This can help in budgeting and planning, as you know your repayments won’t surpass a certain amount, even if interest rates rise significantly.
  3. Offset Mortgage: An offset mortgage links your mortgage to your savings account. Instead of earning interest on your savings, you offset the amount you owe on your mortgage. For example, if you have a mortgage of £200,000 and savings of £20,000, you’ll only be charged interest on £180,000 of your mortgage. This can reduce the amount of interest you pay over the life of the mortgage, and it can also offer more flexibility in terms of overpayments and underpayments. However, since you won’t be earning interest on your savings, it’s important to weigh this against potential benefits.

Summary

In conclusion, understanding the diverse range of mortgage types available to you is crucial for making an informed decision when remortgaging. From the stability of Fixed Rate mortgages to the flexibility of Offset mortgages, and the unique balance offered by Part and Part mortgages, each type comes with its own set of features and considerations. No matter your situation, familiarizing yourself with these options is a significant step towards finding a mortgage that fits your needs. Remember, each mortgage type has its pros and cons, and what’s suitable for one person may not be the best for another. It’s always wise to seek professional advice tailored to your individual situation – so get in touch with us if you have any queries!

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