Choosing a remortgage is essentially no different to a
mortgage. Below is a very brief summary of the key areas
to consider - for a fuller explanation of all the different
areas, please read the mortgages guide on our sister website
www.a-mortgages-website.co.uk:
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.
