Variable rate mortgages are mortgages in which the interest rate that a borrower is given is fluid and will vary according to either the lender’s SVR (standard variable rate) or the Bank of England’s base rate. In other words, the term ‘variable’, as opposed to ‘fixed’ refers to the fact that the interest rate on that mortgage can go up and / or go down.
The Advantages of Variable Rate Mortgages – The advantages of variable rate mortgages are obviously that when the market rates drop, either via the Bank of England base rate or your lender’s own SVR, your mortgage interest rates will also drop at the same time and consequently, so will your payments. Also, if you are on a standard variable rate mortgage you will not face early repayment charges as you would with fixed mortgages – this means you can repay more of the mortgage whenever you want.
The Disadvantages of Variable Rate Mortgages – The disadvantages of variable rate mortgages are equally obvious – that just as the market rates can drop, so they can also rise. If the market rates rise, so will your lender’s rate and so will your mortgage interest rates. This could mean a significant rise in the cost of your monthly payment so if you suspect you would not be able to afford such a rise then you would be better off with a fixed rate mortgage.
When it comes to deciding about variable rates things are both more confusing and simultaneously offer more choice than fixed rate mortgages. That’s because there are a number of different variable rate products that offer the freedom you don’t get with fixed rate mortgages whilst also providing a degree of security that you don’t get with SVR mortgages. Click on any of the following to find out about different types of variable rate mortgages:
- Discounted Rate Mortgages
- Tracker Mortgages
- Capped Rate Mortgages
- Cashback Mortgages
- Flexible Mortgages
- Offset Mortgages