The Many Types of Remortgage Deals To be Aware of and How They Are Structured

With anticipated hikes in the Bank of England base rate, many people are seeking remortgages on their homes to try and fix their interest rates. But what other deals can you get and what are the benefits of each one?

All lenders have a standard variable rate, which is the most basic deal available. The interest rate goes up and down and can change whenever the lender decides. This rate is often used at the end of an introductory rate.

These are very flexible and perfect for customers who don't want to be tied in for a specified period of time. Because there is no 'deal' as such on offer, there is no penalty for settling the loan. The only problem is when interest rates are hiked, your mortgage repayments go up at the same time.

By far the most popular contract type at the moment is fixed rate deals. With these, the interest rate stays the same throughout the first few years, so no matter what the base rate does, your monthly repayments will never change until the deal runs out.

When the fixed period finishes, the contract will then go back to the standard variable rate. You should be fully aware, however, that if you enter into a fixed rate contract, you may have to pay an early repayment charge if you pay back the loan before the fixed period ends.

Discounted mortgages are not very common today, however some lenders do still offer them. As you would expect, the interest rate is discounted at the start of the mortgage term before reverting to the standard variable interest rate.

This type of contract have historically been popular with first time buyers, as often finances can be tight when buying a first home, so this allows them to benefit from lower repayments initially. A disadvantage here is that discount mortgages have large fees to pay at the beginning of the deal.

Offset mortgages are becoming more popular as customers realise that they are not as complex as they first thought. The concept is simple: you have a mortgage and a savings account. The savings account holds your excess income and is used to overpay on the mortgage.

Any disposable income that you have can be placed in the savings account and this reduces the amount that you owe on your mortgage. You only pay interest on the mortgage amount minus the savings amount so monthly repayments can be lower too. If you maintain the repayment amount however, even if the interest reduces, you can shorten your mortgage term.

Mortgages are pretty straightforward, but if you're not hugely knowledgeable about the subject then it may be best to bring in a professional adviser who can explain how it all works to you, as a mortgage is a huge financial decision.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com