What are the advantages of a variable rate mortgage?
Some lenders offer variable-rate mortgage products with discounts off their standard variable rates and no early repayment charges. They are usually lower than fixed-rate products but have the potential to change over the term if the lender changes their variable rate or external rates fluctuate. A specialist advisor will be able to guide you through the benefits and drawbacks of these products.
Generally, the lender’s standard variable rate (SVR) is the rate a mortgage will revert to once any product has ended. At this point you will not be tied in with any early repayment charge, the main advantage of this is that you are free to look elsewhere, sell your property or pay your mortgage off in full, another advantage can be that if interest rates fall your payments will decrease.
What happens when my mortgage goes to a variable rate?
This happens when you come to the end of your fixed, discounted or tracker rate mortgage product, you will normally be free to leave your mortgage lender with no early repayment charges. Lenders standard variable rates are often the highest interest rates they offer and will increase and decrease along with market conditions, some are linked to the bank of England base rate but not all. When you are on the standard variable rate lenders are not obliged to pass on increases or decreases to your interest rate.
You can avoid reverting to the standard variable rate by using a specialist broker to obtain you a new mortgage product 3-6 months prior to your current one expiring.
Is it safe to get a variable-rate mortgage?
This depends on the market conditions at the time, if rates are predicted to fall you may benefit from reductions in your payments, if they are set to rise then you will see your payments increase. The main advantage to being on the variable rate is the flexibility it gives you to switch lender or redeem your mortgage.
Why would you want a variable-rate mortgage?
If you need flexibility, if you plan to move house in less than 2 years or pay your mortgage off in some other way then you may not benefit from being tied into a lender’s product.
Does my payment change in a variable-rate mortgage?
Depending on how a lender decides their variable interest rate, you will see increases or decreases in your payment, this can be linked to the bank of England base rate, LIBOR rate or other methods a lender may use to calculate their standard variable rate.
Is it better to go with a fixed or variable-rate mortgage?
This depends on your own personal circumstances and attitude to risk, there are advantages and disadvantages to each type of product. A specialist mortgage advisor will be able to advise you on what type of mortgage product is best for you.