Remortgages and mortgages are both types of home loans as both must be secured on the equity of a property. Equity is the difference between the value of a property and the balance of the mortgage secured on it.This means that the equity on a property would be £100,000 if the house was worth £370,000 and the outstanding mortgage balance was £270,000.
A mortgage is a home loan needed to purchase a property whether it is for a first time buyer to enter the homeowner market and get a foot on the first rung of the property ladder or someone buying a second, third or susequent house.
A remortgage is a financial product for which only homeowners are eligible to apply. A remortgage involves paying off the mortgage with the current mortgage lender and changing to a different mortgage lender.
This change can be to raise capital for just about any purpose such as to buy a car, go on an exotic foreign trip for a special occasion, a luxury cruise, a wedding on a romantic sun kissed beach, etc. A very common use for a remortgage is not only to pay off the current mortgage but to raise additional funds to pay off all outstanding credit card and loan debts leaving the homeowner with one monthly payment instead of several. This is known as debt consolidation.
There are numerous kinds of remortgages and mortgages and two of these are tracker mortgages and remortgages and fixed rate mortgages and remortgages.
A tracker does what it says on the box and that is it tracks or follows something, and what this something is is the Bank Of England base lending rate. This is at the all time low of half of one percent, and as tracker remortgages and mortgages track this it means that they are very cheap at the moment.
For example the Woolwich Building Society currently has tracker remortgages that are set at 1.48 above base, giving this tracker product a rate of 1.98 . The Alliance and Leicster has just released a tracker mortgage deal at 1.49 above the base rate meaning that the interest rate for this remortgage and mortgage product is 1.99 .
These rates are excellent, and certainly very low at the moment, but when the base rate of The Bank Of England goes up the remortgage and mortgage products increases accordingly. It is highly unlikely that the base rate will ever fall below the current level, meaning that tracker products are as low now as they are ever likely to be.
What all this means is that homeowners with tracker mortgages never know what their repayments may be in the future.
Fixed rates on the other hand have the monthly payment fixed at exactly the same rate for the the duration of the fixed payment which can be from one year to commonly up to three years. Some mortgage lenders are prepared to offer fixed rates of up to five years, and some even up to ten years.
Fixed rate remortgages and mortgages are more expensive than trackers starting at about 3.15 at present and the longer the fixed period the higher the monthly repayment becomes. However in these days of uncertainty a homeowner at least has the security of knowing how much his mortgage will cost.
Therefore when it comes to choosing a tracker remortgage or mortgage compared to a fixed one it is a matter of personal choice and really little else.
Author Resource:-
Liz has worked for many years as a secured loan , mortgage and remortgage underwriter with Champion Finance. http://www.championfinance.com
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