Variable Rate

A variable rate mortgage is a mortgage that has a constantly changing interest rate. Many UK lenders offer a variety of variable rate mortgage products. Before you sign up for one of these loans, you need to count the cost.

Changing Rates Are Unpredictable

The problem with variable rate mortgages is that the change in the rate is unpredictable. You will be offered a loan that is typically 2% over the base rate of the Bank of England. When the Bank of England raises its rates, your rates will increase. This can make your loan cost a lot more than it does now in just a few years.

Of course, the opposite is also true. When the bank of England lowers its rates, your rate will be lowered. This means that you can benefit from market drops. This is what makes variable rate mortgages appealing to many borrowers.

Getting a Good Deal

The good news about variable rate mortgages is that you can get a good deal on your loan if you go this route. Many variable rate mortgages begin with a discounted fixed rate for a set period of time. For those with good credit ratings, this rate is usually lower than the lender’s standard variable rate.

Often the introductory offer is what makes you choose a variable rate mortgage, rather than choosing a fixed mortgage. The introductory rate is so low that you will save quite a bit of money. However, you need to remember that you will eventually have a variable rate mortgage, and this mortgage may end up increasing quite a bit.

What to Avoid with Variable Rate Mortgages

If you decide to take advantage of a discount introductory rate and get a variable rate mortgage, there is one thing you need to be aware of in order to avoid a common lender trap. Make sure that you are not going to have to pay an early repayment penalty if you should change loans before the loan term. You can benefit from discount introductory rates, but if you are tied into the loan by a high repayment penalty, you will not be able to change mortgage products when the introductory period is over.

If your loan does have a repayment penalty, make sure that it is not more than one or two years after your introductory rate is over. This will allow you to get a new loan with another introductory rate much easier. In this way, you can benefit from a variable rate mortgage without ending up stuck in a loan with ever-increasing interest rates.