Remortgages: understanding the different types

As with traditional mortgage deals, there is plenty of choice when it comes to remortgaging your home. Different remortgage deals will work better for different people, depending on individual circumstances, so it’s important that you understand the various types before you make your decision. The main types are listed below with an explanation of the advantages and potential disadvantages of each:

Buy-to-let remortgage deals

If you’ve invested in property and your introductory rate has expired, your high mortgage rates may be eating into your rental profits. It may also be the case that the value of the property has increased and that there is equity that could be released. Either way, a buy-to-let remortgage could benefit you. While fees and interest rates tend to be higher for buy-to-let remortgages than other types of remortgage deal, they are the only option if you are renting out the property. This makes comparing deals even more worthwhile if you are looking for an affordable option.

Fixed-rate remortgage deals

With a fixed-rate deal you pay the same amount each month until the end of the mortgage term, which can be anything between two and 25 years, although the majority of customers choose to fix for two, three or five years. Fixed-rate remortgages help people to budget easily and avoid any unexpected increases. It is worth bearing in mind that you will not benefit from any potential interest rate decreases and you may have to pay an early repayment fee if you wish to end the deal before the full mortgage term is up.

Variable-rate remortgage deals

There are two main types of variable-rate remortgages: tracker mortgages and discount mortgages. Tracker mortgages track the Bank of England base rate at a set margin, for example at base rate +1.5%. If the Bank of England base rate decreases, your repayments will drop, but if it goes up you will end up paying more per month. This can be a major advantage providing interest rates remain low. Discount mortgages offer a set percentage discount from the lender’s standard variable rate (SVR), for example 0.5% below the SVR for a fixed period, usually two, three or five years. While you should pay less than you would on your lender’s SVR, your monthly repayments could go up or down if the SVR changes.

Offset and current account mortgages

With offset and current account remortgage deals, funds in your savings and/or current account are used to offset the amount of interest you have to pay on your mortgage. For example, if you owe £100,000 on your mortgage and have £10,000 in your savings or current account, you will only pay interest on the remaining £90,000. This could help you pay off your mortgage more quickly or could potentially give you access to a larger remortgage loan. If you pick this option, you will not receive interest on any savings used to offset your mortgage, and if your savings levels dwindle you may end up paying a higher rate of interest.

Remortgaging with bad credit

Some people are put off remortgaging because they don’t have clean credit histories, but there is no reason why you can’t apply for a new deal if this is the case. It is worth bearing in mind that you may have a more limited choice and that rates may be slightly higher than for those with good credit, but you should be able to find a deal that beats your lender’s SVR. The key will be to compare the whole market and to get advice from an experienced mortgage advisor.

Looking to remortgage?

If you are looking to switch your existing mortgage to a better deal, you’ve come to the right place. At we will enable you to search quickly and easily for the best remortgage deals on the market. Our qualified advisors will talk you through the process, making sure that you make the right decision while keeping costs as low as possible. Use our simple form to start searching for the best UK remortgage offers today.

*2 year fixed with TSB 1.09% then 3.59% - APRC is 3.3% Max LTV is 60%. Quoted on 27th May 2020.