Variable Rate Mortgage

Variable Rate

Variable rate mortgages are, in the simplest terms, mortgages that allow for the interest rate to rise and fall during your loan term.

Variable Rate Mortgages

Get a Free Quote Introduction To Variable Rate Mortgages
The basic mortgage offered by a lender is the Standard Variable Rate mortgage (SVR). This interest repayment part of this mortgage is based on the lenders variable rate which is in turn based on the Bank of England base rate. The lenderís base rate will be set at around 2% above the Bank of England rate and as if the rises so too will the lenderís rate usually by the same amount.

So as an example a rise in the Bank of England base rate from 5% to 6% will result in a rise from 7% to 8% if the lenders rate is set at 2% above the Bank of England rate. However, unlike a Tracker mortgage the lenders rate does not exactly track the Bank of England rate. The lender will assess the new base rate and then decide whether it is going to change its own rate. When the Bank of England rate goes down it can sometimes be a period of time before the lenderís rate drops as they decide whether the rate is going to rise again perhaps. This means that savings from base rate falls are not always passed on to the borrower as swiftly as they are in a Tracker mortgage. Base rate rises however do tend to be passed on speedily as those are costing the lender money.

The SVR will be the mortgage that any discounted rate such as a the lenderís set period Fixed Rate mortgage will revert to at the end of its term.

Unlike the Bank of England base rate different lenders will have a different Standard Variable Rate so it is possible to find lenders who have a lower rate than others. Most lenders however will have a discounted rate or Tracker Rate that will be below the SVR.

The Standard Variable Rate mortgage is the touch-point that a lenderís other mortgages should be measured against. The SVR will not be the most competitive mortgage that they offer so itís worth seeing how their other mortgage offers compare against it. Itís also worth seeing how much above the Bank of England rate the SVR is because any other mortgage may revert to the SVR on completing its offer period. Because there is room in the market for the lenders to manoeuvre the odd half of one percent difference can make a large difference to the monthly repayments.

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Typical Interest Payments

First Time Buyers

2.89%

Purchased Fixed

2.89%

Discounted Rate

2.99%

Buy To Let

2.99%

Commercial

3%

 

 

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