Standard Variable Rate
What is a standard variable rate mortgage?
A Standard Variable Rate Mortgage is based on the standard variable rate (SVR) which is the basic interest rate on which a Lender bases all of its mortgage deals.
How expensive is this type of mortgage?
The average lending rate is usually about 2% above the Bank of England's base lending rate but can be higher depending on the Lender.
Is this a good way to borrow money?
A Standard Variable Rate Mortgage is a very expensive way to borrow money as its usually at the Lender's highest rate, when you could choose a cheaper fixed interest or discounted variable rate mortgage.
How does the interest change overtime?
Depending on the interest rates, if these go up then the Lender will immediately increase your monthly payments, and there is actually no restrictions on how much they can be increased by.
Alternatively, if interest rates go down then so will your monthly payments but this is not usually so prompt. In an unstable market this could prove to be costly so its worth considering other options which offer better rates.
If you have a poor credit rating then you may find that your Lender will offer a higher rate as they are taking much more of a risk, and this could prove a very expensive way of obtaining a mortgage, so its essential to shop around.
As this mortgage is expensive, why do people choose it?
You may also be unaware that when your initial offer or special deal on a mortgage finishes, around 2 to 5 years, your mortgage will automatically switch to a standard variable rate mortgage so its worth re-mortgaging a couple of months before this happens and get a better deal unless you are tied into this, so its important to check this at the beginning of any mortgage offer and also if there are any redemption charges if you switch to another deal.