Standard Variable Rate

There are many different types of Variable Rate mortgages and remortgages available on the market. A Variable Rate is basically one whose interest rate changes, normally in line with the lender’s Standard Variable Rate.

Tracker Rate mortgages are a variation on Variable Rate mortgages, however they are tied to the Bank of England base rate, and are normally a set percentage above this. Standard Variable Rate mortgages on the other hand, are often influenced by changes in the Bank of England base rate, but this is not guaranteed, and is up to the lender.

A lender’s Standard Variable Rate is typically a few percent above the Bank of England base rate, for example the base rate plus 2.5% may be a typical offer.

Budget

Naturally, having a mortgage or remortgage with a variable interest rate makes your monthly payments somewhat unpredictable. The lender’s Standard Variable Rate will continually change, and is generally affected to some degree by changes to the base rate.

Many people are understandably not keen on the uncertainty involved in a variable rate mortgage. If you keep to a budget and like to have a firm idea of what your monthly outgoings are going to be, at least in the short term, then a Variable Rate remortgage may not be for you.

Disadvantages

Variable rate mortgages can end up being costly given their rates, and lenders can increase the rates even when the base rate has not increased. Similarly, the base rate reducing does not necessarily mean that your lender’s rate will reduce as a result, so that it costs you where it may not have if your rate had been tied to the base rate as in a Tracker mortgage.

Advantages

However, there are advantages to having a Variable Rate. There sometimes tend to be fewer restrictions placed on the deal you’ll get with a Variable Rate. For example, these deals often won’t enforce exit fees if you end the mortgage early, as is often the case with fixed rates. In the same vein, you can often make additional payment, i.e. pay back more money when you happen to have it to hand, thereby working towards paying your mortgage off earlier in the long run.

As with any mortgage or remortgage, you should try as far as possible to work out what your outgoings are likely to be, although naturally this can be tricky when it involves a Variable Rate.