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The Benefits and Drawbacks of Different Remortgages

By: Keith R Lunt

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Standard Variable Rate remortgage
The basic type of remortgage available from a building society. In theory, as the cost of lending is adjusted the lender will change the price of the SVR to follow these changes, but there will be times when interest rates drop and lenders do not follow in full, or lenders decide to put up interest rates without a matching rise in the base rates.

Advantages - As a rule these are the just type of remortgage that do not have complicated and expensive tie in periods, but at the moment, with the constant fear that interest rates cannot drop more but might increase in the future, SVRs could have the lowest interest rates on offer and if you need to, you can quickly move to another product.

Disadvantages - Tricky to budget as you do not know when nor how much these will alter. They should follow all changes, but building societies will not always pass on the full base rate cuts. Since there are no offers attached, historically these are costly mortgages.

Fixed Rate mortgage
The basic and very common type of remortgage. With this remortgage, for a fixed term of probably 1, 2, 5 or more years, you and your lender agree the rate at which interest is charged on the advance. It is fixed for the entire length of the agreed period. Generally, the longer the fixed period the higher the interest rate.

Advantages - No matter what happens to interest rates, you know exactly how much you will be spending. This means you could budget your repayments for the entire fixed period, without any nasty surprises.

Disadvantages - If interest rates drop then you do not see any benefits.

Discount Rate Mortgages
With this you are offered an agreed discount off the bank's Standard Variable Rate remortgage. You might be offered 1.5 percentage points below their SVR, for example. Once again, the better discount deals are offered for the shorter terms, but you have to watch also how the SVR will track base rate changes.

Advantages - If the SVR reduces, then your remortgage will also follow the reduction.

Disadvantages - They will also rise if the SVR rises. Also, if your bank does not track the base rate changes quickly, then you might not get the full advantages of reductions in the price of borrowing. If interest rates suddenly increase ample, then you can be in for a nasty budgeting shock, so have to be ready for an increase in payments.

Tracker Rate Mortgages
These mortagages are supposed to track the rise and falls in the base rates, as a rule plus or minus a percentage point or two. Every alter to the base rate is supposed to be reflected in the remortgage you have.

Advantages - you get all of the SVR advantages, with a discount built in. It is budding to get a long term tracker, that can ultimately save you lots of cash long term.

Disadvantages - in the current interest rate drops, not all Trackers have followed the base interest rate fully. These will follow any rises in the base rates and might be expensive to end early.

Article Source: http://depositarticles.com/

Written by Keith Lunt, who owns Compare Mortgage Rates.co.uk. For more useful finance talk, call into our remortgage site.

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