Different Types of Remortgage Deals Explained

Remortgaging is the process of moving from one mortgage deal to another, usually to secure better terms or save money. It can mean switching to a new lender or staying with your current one on a new product. Many homeowners use remortgage services when their initial fixed or discounted term ends, because the lender’s standard variable rate is often much higher. By arranging a new deal, you may lower monthly payments, cut the total cost of borrowing, or release equity tied up in your home.

There are many reasons why people remortgage. Some want to reduce costs, while others raise funds for home improvements, debt repayment, or family support. Remortgage services give flexibility, but the wide choice of deals can make the decision confusing. Understanding the main deal types and what lenders look at helps you make a confident choice.

When thinking about remortgaging, it is important to look beyond the headline rate. Your financial circumstances, how long you plan to stay in your home, and your attitude to risk all matter. In the sections below, we explore the main types of remortgage deals, how to decide what might suit you best, what lenders consider when making offers, and how to compare the overall costs and savings.

The Main Types of Remortgage Deals

The remortgage market has several deal types, each designed for different needs. Some prioritise stability, while others focus on flexibility or potential savings. Knowing the differences helps you compare offers and avoid problems later.

Fixed Rate Remortgage

A fixed rate remortgage is one of the most common options. The interest rate is locked for a set period, often between two and ten years. This means your monthly repayments stay the same regardless of wider economic changes. The biggest advantage is certainty. Families often value fixed rates as they make budgeting predictable.

On the downside, fixed deals are sometimes more expensive at the start compared to variable options. You also cannot benefit if interest rates fall. Early repayment charges usually apply if you want to leave before the fixed term ends. For that reason, you need to think carefully about how long to fix. A two-year fix may give flexibility, while a ten-year fix may suit those planning to stay long term.

Tracker Remortgage

A tracker deal follows the Bank of England base rate, with the lender adding a margin. For example, it could be base rate plus one per cent. Your payments rise or fall in line with the base rate. When rates are low, tracker mortgages can be cheaper than fixed deals, making them attractive for people willing to accept some uncertainty.

The risk is that your payments could rise quickly if the base rate increases. Some tracker mortgages include a minimum level called a floor, meaning payments cannot fall below a certain point even if the base rate drops. Trackers work best for those who can cope with fluctuations and want to take advantage of lower rates in the short term.

Discount Remortgage

A discount mortgage reduces the lender’s standard variable rate (SVR) by a set amount for a fixed time, such as two per cent less for three years. This can give low starting payments and appears attractive compared to fixed deals. However, as the SVR can change at any time, repayments are less predictable. If the lender raises the SVR, your costs will increase too.

Discount remortgages are often chosen by those who want low initial payments and are comfortable with the risk of possible rises. Because the SVR is controlled by the lender, changes are harder to predict compared with tracker mortgages.

Offset Remortgage

Offset remortgages link your savings and current accounts to your mortgage. The balances in those accounts reduce the amount of interest you pay. For example, if your mortgage is £180,000 and you have £20,000 in savings, you would only pay interest on £160,000. This can shorten the length of the loan and save a significant amount of interest.

The drawback is that your savings do not earn interest while linked. Offset deals work best for people with larger savings balances or those who keep high amounts in current accounts. For higher-rate taxpayers, the savings can be even greater, as you avoid tax on savings interest by reducing mortgage costs instead.

How to Decide Which Deal Suits You

The right remortgage deal depends on your goals and financial position. If stability is your main concern, a fixed rate is usually best, as it protects against sudden increases in interest rates. If you are confident rates will remain low and can handle potential changes, a tracker may save you money. Those wanting the lowest starting payments may prefer a discount deal, while people with strong savings might benefit most from an offset arrangement.

Think about how long you plan to stay in your current home. If you expect to move in a few years, it may not make sense to lock into a long-term fixed deal with heavy exit charges. A shorter fix or a flexible deal could work better. On the other hand, if you plan to stay put for a long time, a longer fixed deal may give more peace of mind.

Also consider your income stability. Households with steady income may be better placed to handle the uncertainty of a tracker, while those with variable income might prefer the certainty of fixed payments. Always weigh the benefits against the risks before committing.

What Lenders Consider When Offering Deals

When you apply for a remortgage, lenders assess several factors. One of the most important is your credit history, as it shows how well you have managed debts in the past. A strong credit score can help you access lower rates, while a weaker score may mean fewer choices or higher costs.

Lenders also look at the loan-to-value (LTV) ratio, which compares the amount you want to borrow with the value of your property. The lower the LTV, the better the deals available. For example, someone borrowing 60 per cent of their property value is likely to get a better rate than someone borrowing 90 per cent. This means paying down your mortgage or having a property that has increased in value can open up cheaper options.

Other considerations include your income, job type, and outstanding debts. A stable job and manageable debt levels make you more attractive to lenders. They may also check bank statements to see that you can manage future repayments. All these checks help lenders decide which deals to offer and at what rates.

Comparing the Costs and Savings of Different Deals

When reviewing remortgage services, it is vital to look at the overall cost of each option. A low interest rate might catch your eye, but fees and other charges can make a big difference. To make a fair comparison, look at both the monthly payments and the extra costs involved.

Interest Rates and Monthly Payments

Interest rates directly affect your monthly repayments, and many people use them as the main measure when comparing deals. However, a slightly higher rate may not always be worse if the fees are lower. Always calculate how much you will pay over the whole term of the deal. It is also helpful to compare the savings against staying on your lender’s SVR, which is usually more expensive.

Arrangement Fees and Exit Charges

Most remortgage deals include fees such as arrangement charges, booking fees, and valuation costs. These can range from a few hundred pounds to more than a thousand. Some lenders allow you to add the fee to your mortgage, but that means paying interest on it too. Early repayment charges are another factor to check. If you leave a deal before it ends, you may have to pay a percentage of the outstanding loan, which can be costly.

Long-Term Savings

The best way to compare deals is to look at the overall cost over the fixed or discounted term. A deal with a higher fee but lower rate may save more in the long run than one with a lower fee and higher rate. Offset mortgages can also give significant savings if you regularly keep money in savings accounts. By reducing the interest charged, you make your savings work harder. Always check the total cost before deciding.