Variable Rate Mortgage

A variable rate mortgage is the opposite to a fixed mortgage as its interest rate does change over the term. There are different types of variable rate mortgage: discounted rate, tracker rate, and standard variable. With the majority of these mortgages the lender decides whether they pass on interest rate rises and falls onto the customer.  However, a tracker mortgage fluctuates in line with the Bank of England base rate.

There are both advantages and disadvantages to taking out a variable rate mortgage, but it does include an element of risk. When the interest rate is particularly low, or about to drop, these mortgages become incredibly attractive. If you prefer to pay the same amount every month, you have no need to worry when the interest rate drops as you can continue making the same payments, and pay off more towards your mortgage.

By repaying more of your mortgage when the interest rate is low, you could wipe thousands of pounds off your interest charges and pay it off sooner if you take advantage of the lower interest rates. There is of course a downside to a variable rate mortgage, especially if you are on a tight budget.

If your monthly payments are towards the top end of what you can afford and you would struggle if they were to increase significantly, a variable rate mortgage probably is not for you.  Just as the interest rate can dip enticingly low, it can also increase, making your monthly payments surge.

Rite Financial can discuss all the pros and cons of a variable rate mortgage and find out whether it is a suitable option for you. By entering this type of mortgage at the right time you could reap the rewards, but if your timing is wrong, you could find yourself struggling to make ends meet.

The majority of variable rate mortgages come with a 25 year term, but you can find shorter and longer mortgages such as 15 or 40 years. If you have the budget to increase your monthly payments, you will find that a shorter mortgage reduces the overall interest paid, and you will pay off your mortgage sooner. If you would rather reduce your monthly payment and live with the consequence of paying lots towards interest, you might prefer a longer mortgage.

With mortgages there are many different options available, you can tailor most variable rate mortgages to suit you, but it is important that you know and understand the lingo. Rite Financial can work with you to find the right mortgage, one that you can afford for the long term. 

One of the great benefits about a variable rate mortgage is that they don’t tend to have early repayment charges (ERC), meaning that if you decide the mortgage you have entered isn’t right for you, you can switch to a different one, whether it be a different variable rate or even a fixed rate.

If you’re unsure about which product is right for you, contact us today to discuss your options.