Variable Rate Mortgages

Variable rate mortgages have an interest rate that may fluctuate throughout the term of the loan.

Interest rates attached to variable rate mortgages usually move in line with either the Bank of England Base Rate (BoEBR) or the lender’s Standard Variable Rate (SVR).

There are several different types of products that have a variable rate of interest, including:

• Tracker mortgages
• Discount mortgages
• Capped mortgages

Variable rate Mortgages offer borrowers no protection against interest rate rises and are therefore risky however variable rate mortgages are the most common form of loan for house purchase in the United Kingdom, variable rate mortgages are typically, but not always, less expensive than fixed-rate mortgages.

The amount of monthly repayments due can both rise and fall throughout the term of the loan therefore making variable rate mortgages unsuitable for householders who have a tight budget.

Despite this risk, variable rate mortgages do have some advantages.

During periods of traditionally high interest rates many borrowers opt for mortgage products with a variable rate attached if they are expecting the cost of borrowing to fall.

This is because any fall in the underlying interest rate will be passed onto them by their lender, resulting in a decrease in their monthly Mortgage payments.

Additionally, variable rate mortgages have less stringent terms and conditions than their fixed rate counterparts, and are usually offered with low fees and no tie-in periods.

Variable rate mortgages, like other types of mortgage, may offer the ability to repay the capital early without penalty. Early payments of part of the capital will reduce the total cost of the loan (total interest paid), and will shorten the amount of time needed to pay off the loan.

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