Remortgage Options
There are many options when looking to switch a mortgage plan. An introduction to the main types follows.
Fixed Rate Remortgage
With this plan, the rate remains fixed for an agreed initial period, usually between one and five years. When this period ends, the rate will revert to the lender’s standard rate. This type of plan offers stability, allowing a borrower to know how much they must repay each month. If rates increase, those on a fixed rate plan will be protected from increased payments, however is rates fall they will not benefit from reduced payments.
Standard Variable Rate (SVR) Remortgage
This type of plan is linked to the Bank of England base rate. The rate set by a lender will typically be around two percent higher than the base rate. The rate will rise and fall in-line with changes to the Bank of England base rate. Rates will vary between lenders and depending on the personal circumstance of an applicant. Good credit applicants will be offered the lowest rates.
Discounted Variable Rate (DVR) Remortgage
This sort of plan involves a lender offering a reduced initial rate, typically for between two and five years. This rate will be less than the lender’s SVR. When the discounted period ends, the rate will revert to the lender’s SVR. The rate is variable, thus throughout the plan it will fluctuate in accordance with the Bank of England base rate.
Capped Rate Remortgage
This type of plan combines aspects of a fixed and variable rate mortgage. A capped rate means that the rate cannot go above a set level, yet it can fall, thus, a borrower is protected against rate increases, whilst also being able to benefit from rate cuts. However, there are two drawbacks. Firstly, capped rate plans are subject to an arrangement fee and secondly, they come with a higher standard rate of interest.
Flexible Remortgage
A flexible plan allows the borrower to adjust the monthly amount they pay. Overpaying allows the debt to be cleared sooner, thus reducing the overall interest paid. Underpaying or a payment holiday can free up cash that is needed elsewhere.
Whatever type of plan is chosen, to find the best value deal a shopper should compare deals from a variety of different providers.