Different Types of Remortgagethere are many different mortgage types, this page will help guide you through the complex field of mortgages and give you a basic understanding of the 7 basic mortgage types

As with a mortgage, remortgaging a property can be done with a variety of different mortgage products, all of which have their own benefits and pitfalls.

You may have already decided that remortgaging is a good idea as your current mortgage rate is so uncompetitive, for you the journey is allot shorter as now you need only choose a product that suits your circumstances the best.

In many circumstances however it can be difficult to see if remortgaging will save you any money or offer you any additional flexibility over your current mortgage. If this is the case for you, a careful reading of the following product descriptions will hopefully provide the answers as to the most suited products, you can then combine this knowledge with our best buy tables that will allow you to calculate any potential saving.

Below we have provided details of the most common mortgage types and what benefits and pitfalls each offer, this will hopefully provide you with enough information to take you off the fence and decide definitively if remortgaging or sticking with your current mortgage is better.

Fixed rate mortgages

Fixed rate mortgages offer you a fixed interest rate for a predetermined period of time, usually around 2 or 3 years however some lenders offer products with longer fixed periods.

Fixed rate mortgages are popular with first time buyers as it allows you to budget accurately as your monthly commitment will not vary.

Of late the government has been stimulating lenders to offer longer periods of fixed rates to attract more new buyers to the market however their uptake has been slow and the market shows signs that people prefer to be tied down for shorter rather than longer.

Click here to read our article dedicated to fixed rate remortgages

Tracker mortgages

Tracker mortgages are currently vary popular due to the low interest rate environment we are in. Tracker mortgages ‘track’ the Bank of England base rate plus a margin for an agreed term for example Base rate + 1% for 3 years.

It should be noted that many trackers agreed term is lifetime, this simply means the mortgage rate margin (the 1% in the above example) does not have a term that will expire; the agreed margin will remain indefinitely.

Tracker remortgages are suited to individuals who are not bound to a strict budget as such and would like the potential of getting lower rates whilst being able to cover any increase in monthly commitment due to an increase in the base rate.

Click here to read our article dedicated to Tracker rate remortgages

Discount Remortgages

Discount mortgages are similar to Tracker mortgages in that they indirectly tack the Bank of England’s base rate.

They get the name 'Discount' because the rate you get is calculated as the lenders Standard Variable Rate less an agreed Discount percentage. For example if the lenders standard variable rate is 6% and you have a 1.7% discount rate you will be paying 4.3% interest.

We strongly recommend you read our advice page on Standard Variable Rates (SVR) and our in depth article on discount remortgages

Capped Remortgages

Capped mortgages are effectively tracker mortgages with an additional layer of security for the borrower, the cap.

Like a tracker mortgage, a capped remortgage will track the Bank of England base rate plus your pre agreed margin percentage. The difference is that whilst your rate tracks the bank of england it cannot go above the 'cap' rate.

This type of mortgage suits those who can handle the ups and downs of a tracker mortgage but are concerned about interest rates going up huge amounts.

So in summary capped mortgages offer you additional protection and a potential upside in the rates dropping but you will pay quite a premium at the start for having these securities.

Click here to read our article dedicated to capped rate remortgages

Cashback Mortgages

Cashback mortgages are loans that provide you with a cash lump sum equal to a pre agreed %age sum.

of your mortgage borrowing, for example a 4% cashback on a £100,000 mortgage will return £4,000.

This mortgage is well suited to those who have a requirement for a cash lump sum or have a pre-existing financial commitment to meet such as a balloon payment.
Most cashback mortgages have early repayment charges attached and charge higher interest rates.

Offset mortgages

Offset mortgages are a relatively new product to the UK mortgage market. Offset mortgages work by ‘offsetting’ your mortgage payments against your savings or in even more modern mortgages, your current account.

What this means is your saving effectively earn the rate of interest your mortgage is charging. This offers some great advantages as you will not achieve a saving rate as good as your mortgage rate while it also has tax saving implications for certain individuals.

So if you have a £200,000 mortgage and £50,000 in saving, you will only pay interest on the remaining balance (£150,000).

Offset mortgages advantages start at holding about a 10% equivalency (holding 10% of the mortgage sum in savings). Offsetting mortgages can reduce the overall length of mortgages by up to 8 years 8 months!

Offset mortgages tend to have marginally higher interest rates

Flexible mortgages

Flexible mortgages is a blanket term for any mortgages that offer a greater level of flexibility than more traditional mortgage products. Common features of flexible mortgages are:

Flexible mortgages are perfect for those who have varying finances such as an irregular income or people who stand a good chance of settling the mortgage before its agreed term.

Flexible mortgages however command a premium and as such should only be used if the feature set offered is essential to your mortgage requirements. It is worth looking around, or asking your mortgage broker to, as many traditional mortgages offer flexible style benefits such as overpayments.

Summary:

Congratulations, you now know the basics of the 7 main types of mortgages available in today mortgage market and cut several thousand products down to 7!
Cheat sheet:

Now that you know what the main mortgages are, you can begin to make some informed choices. But you still need to know about the best way to pay back that money, and there’s allot to pay back, so doing it the right way will save you money.