Switch and Fix Remortgage

Remortgage lenders are always coming up with new terms and phrases to identify unique remortgage products.  The “Switch and Fix” remortgage is one of those phrases.  Before explaining the switch and fix remortgage, it will be important to understand some other terms first.

There are of course different types of remortgage products and all of them have distinct advantages and disadvantages.  By having these different products, lenders are trying to make sure they have products that are as unique as a homeowner’s personal needs and situations.  It is not intended to confuse homeowners that are shopping for a remortgage.

Different remortgage products have different levels of risk to both the lender as well as the homeowner.  It is a rule of thumb, that when the risk is low for the lender it will most likely be higher for the homeowner.  In addition the less risk for the lender the better the interest rate for the homeowner.  On the flip side, the higher the risk for the lender, the less the risk on the homeowner and the interest rates for this lower risk will evolve into higher interest rates available on the remortgage deal.

Remortgage products with the least amount of risk to the homeowner but a higher risk to the lender are those with fixed rates.  Fixed rate remortgages have a set interest rate and do not fluctuate when the Bank of England’s Monetary Policy Committee raises or lowers the standard base interest rate.  The homeowner that wants to know exactly what their monthly mortgage repayment will be is going to want a fixed rate remortgage.  These types of remortgage products offer up the most security to the homeowner that will not have to worry about a changing monthly repayment amount. 

Fixed rate remortgages do not run the life of a remortgage and are like other remortgage deals only good for a set term.  If you obtain a 5 year fixed rate remortgage then your fixed rate will remain in effect for 5 years.  At the end of that time the homeowner will move to the lender’s variable rate.  The lender’s variable rate is exactly what it says it is.  It is a rate set by the lender alone; it can be changed as wanted by the lender, either up or down despite the movement of the Bank of England’s interest rate, and that is why it is called variable.  It is the highest risk of all interest rates since it can change at any time.  At the end of a fixed rate term, a homeowner can remain on their lender’s variable rate or they can remortgage again.

A tracker loan is exactly what it says.  It is a loan that tracks the Bank of England’s interest rate.  If the Bank’s rate rises, so does the tracker remortgage’s interest rate and if it lowers, so does the tracker.  Trackers, because they have more risk to the homeowner and less to the lender, have better rates than fixed rate remortgages.

This brings us back to the Switch and Fix.  A switch and fix remortgage offers a homeowner the ability to take a tracker remortgage at a lower rate than a fixed rate and stay on the tracker for anytime they want, even the entire term.  However, should they see rates rising by the Bank of England and want more security in a fixed rate they are allowed to switch to a fixed rate without any penalties and fees.  It basically is a remortgage that offers the best of both a tracker and a fixed rate to homeowners.