Variable Rate Mortgage

What is a variable rate mortgage?

The advantages of a variable rate mortgage is that it allows the borrower to shift from a standard variable rate mortgage to another mortgage with no type of early redemption fee. Also if the Bank of England base rate falls, the mortgage payment may also fall.

Standard Variable Rate

Variable rate mortgages are based on the standard variable rate offered by mortgage lenders and mortgage lenders set their standard variable rate depending on the movement of the Bank of England base rate. The level at which the standard variable rate is set varies between different lenders but a standard guideline is between 1.5% and 3.5% over and above Bank of England base rate.

Are they stable and what are the risks?

Variable rate mortgages can save you money over your mortgage lifespan but you need to remember that your payments will go up and down depending on the financial market. The potential danger with variable rate mortgages is a large increase in Bank of England base interest rates and a subsequent increase in the lender’s standard variable rate. The ability for mortgage borrowers to budget is also reduced and if interest rates slide, lenders do not have to pass this down to borrowers.

Maybe a fixed mortgage?

Because of this your monthly payments can go up and down and if you want to pay a fixed amount each month then you should go for a fixed rate mortgage. Also in most cases when your deal ends your interest rate will switch to the standard variable mortgage rate which may be higher or lower than the rate you have been paying and may vary over the remaining term of your mortgage.