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Variable rate mortgages: why would I choose this type of mortgage?
Variable-rate mortgages have interest rates that are tied to the interest rate that is set by the Bank of England. This rate changes roughly every 6 weeks depending on a number of economic factors that the Bank of England takes into consideration.
Are variable rate mortgages worth it?
The main advantage of a variable rate mortgage is that a lender is likely to offer a slightly lower rate of interest, to begin with as a reward. If interest rates stay low, or have sustained periods at a low rate, then this is obviously beneficial as you will pay less interest on the amount you have borrowed. Some financial experts advise that variable rate mortgages usually work out to be the best value in the long term, but it always depends on future economic situations, which are impossible to predict accurately.
Are there different types of variable rate mortgages?
The different types of variable rate mortgages that are available are:
- Standard variable rate mortgage (SVR mortgage). This standard type of mortgage is linked to the Bank of England’s base rates. Be careful you don’t automatically end up on this kind of mortgage after a period of fixed rate mortgage without negotiating a new deal as you could end up paying a lot more in monthly payments.
- Tracker mortgages are tied to a set rate (usually the Bank of England base rate).
- A discount-rate (or discounted rate) mortgage is like an SVR mortgage but with a discount applied for a set period of time.
All variable-rate mortgages come with their own pros and cons, and it’s worth investigating these fully before making any decision.
What are the disadvantages of a variable-rate mortgage?
The main disadvantage of variable rates mortgages is that you risk interest rates going up in which case this type of borrowing can become more expensive.
Where can I find cheap variable rate mortgages?
As with most financial products, the best way to find cheap variable-rate mortgages is to shop around. It’s a good idea to compare variable-rate mortgages from multiple providers. Use an unbiased comparison service, like Tiger.co.uk, to collect quotes from a range of trusted UK variable rate mortgage providers.
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