Remortgages: is variety the spice of loans?

Fixed-rate loans have been all the rage in remortgages for the past few years – but they now look expensive, and more people are going back to variable rate remortgages

Fixed-rate loans have been all the rage in remortgages for the past few years – but they now look expensive, and more people are going back to variable rate remortgages. They don’t provide as much peace of mind – but for those who have the inclination, a variable rate remortgage could spice up your loan life.

Fixed-rate remortgages popular
Fixed-rate remortgages guarantee the annual percentage rate (APR) of a remortgage for an introductory period – usually between two and five years. For the past few years mortgage rates have steadily risen, making fixed-rate deals popular with people completing remortgages.

Only two years ago people were able to get home loans at around four per cent, and their payments will have stayed the same since. As banks and other mortgage providers have raised their standard variable rates to around seven per cent since then, fixed-rate borrowers have been much better off.

Variable rate, or tracker, mortgages differ in that their APRs go up and down in line with the Bank of England’s base interest rate. Payments on a variable-rate mortgage for £100,000 at seven per cent APR could be as much as £252 a month higher than on the same mortgage fixed at four per cent.

Up to 1.4 million people could be hit with this kind of “payment shock” when their fixed-rate deal ends. But does this mean that they should remortgage to another fixed-rate deal?

Variable-rate remortgages might be a better bet
Not necessarily. Interest rates were cut in December 2007 and some experts forecast further cuts in 2008. If you were to arrange a fixed-rate remortgage at seven per cent, and then variable-rate mortgages went down to four per cent, it would be the turn of variable-rate mortgage holders to be £250 a month better off.

There is a risk that this doesn’t happen of course – and the person who remortgages to a fixed-rate deal knows that they are protected against further interest rate rises. But if you can afford to cover a couple of quarter-point interest raises, and believe it’s worth taking a gamble on rates going down, then a variable-rate remortgage might be the thing for you. Variety is, after all, the spice of life.

Get help on remortgages with Homebank
If you are thinking about a remortgage, let the experts save you time and money by finding the right remortgage for you.

Homebank have qualified mortgage consultants ready to advise you with all your mortgage and insurance needs. For informative, insightful advice on remortgages, call us to arrange a no-obligation appointment to suit you.

Homebank are the “people’s mortgage broker”, with thousands of mortgage products to choose from, including some that are not readily available on the High Street. Homebank’s experienced consultants could find the ideal remortgage for you. Call Homebank now, free, on 0800 052 3604.