Standard Variable Rate remortgage
The basic type of mortgage available from a bank. In theory, as the cost of lending is adjusted the building society will vary the cost of the SVR to follow these changes, but there will be times when interest rates drop and lenders do not follow in full, or banks decide to put up interest rates without a matching rise in the base rates.
Advantages - Usually these are the only type of mortgage that do not have complex and costly tie in periods, but at the moment, with the constant fear that interest rates cannot drop more but might increase in the future, SVRs can have the lowest interest rates on offer and if you need to, you could quickly move to another product.
Disadvantages - Not easy to plan 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 whole base rate cuts. Because there are no offers attached, historically these are expensive remortgages.
Fixed Rate remortgage
The basic and very common type of remortgage. With this mortgage, for a fixed term of perhaps 1, 2, 5 or more years, you and your bank agree the rate at which interest is charged on the credit. It is fixed for the entire length of the agreed period. Generally, the longer the fixed period the higher the interest charge.
Advantages - No matter what happens to interest rates, you know exactly how much you will be spending. This means you can plan your repayments for the entire fixed period, without any nasty surprises.
Disadvantages - If interest rates drop then you do not see any payback.
Voucher Rate Remortgages
With this you are offered an agreed discount off the lender's Standard Variable Rate mortgage. You may be offered 1.5 percentage points below their SVR, let's say. Once again, the better voucher 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 may not get the full advantages of reductions in the price of borrowing. If interest rates suddenly increase a load, then you might be in for a nasty budgeting shock, so have to be ready for an increase in payments.
Tracker Rate Remortgages
These mortagages are supposed to track the rise and falls in the base rates, usually plus or minus a percentage point or two. Every change to the base rate is supposed to be reflected in the mortgage you have.
Advantages - you get all of the SVR advantages, with a voucher built in. It is potential to get a long term tracker, that could ultimately save you a lot of money long term.
Disadvantages - in the existing interest rate drops, not all Trackers have followed the base interest rate fully. These will follow any increases in the base rates and might be costly to end early.
Author Resource:
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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