Top 5 Tips for Variable Rate Mortgage Deals
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Variable mortgages include tracker mortgages, capped mortgages and discount mortgages. The defining factor for variable mortgages is that the interest rate is variable, as opposed to fixed-rate mortgages, where the interest rate stays the same over time. Here are the top five factors you need to consider if you’re thinking of taking out a variable mortgage.
What are the advantages of a variable rate mortgages?
If your mortgage is variable and the Bank of England base rate drops and you have chosen a deal linked to the BoE base rate (a tracker mortgage), your interest will drop as well and you could find yourself paying very low monthly payments during this time. So, if you foresee a long period of low base rates, you might decide it is sensible to choose one of the variable mortgages which take advantage of this trend.
What are the disadvantages of a variable mortgages?
If the base rate suddenly increases and you have a variable mortgage, this can have a huge affect on your monthly bills. While all variable mortgages tend to be linked to the base, if you choose a variable mortgage where the interest follows the bank’s standard variable rate (SVR), you may not even benefit when the base rate goes down, as the bank does not have to pass on those savings.
What other types of variable mortgages are there?
Tracker deals usually keep a margin above the base rate for a set period of time (say, 1, 2 or 5 years), after which you can normally remortgage without incurring any penalties. But lifetime trackers keep their margin above the base rate for the whole length of the mortgage. Lifetime trackers are therefore useful if you don’t want to have to remortgage every few years. There are also discounted mortgages, which tend to offer an interest rate which tracks the lender’s SVR at a discount of 1 or 2 per cent for a set period of time.
Should I choose a variable deal?
If you can afford to risk fluctuating monthly payments then a variable mortgage may be a good option. While fixed mortgages offers protection from rising base rates, you usually pay for that protection with higher monthly payments on average, meaning variable mortgages usually cost less overall. However, if you are on a tight monthly budget, remember that failing to pay monthly mortgage repayments can lead to your home being repossessed, so a variable mortgage should not be taken on lightly.
How do I know which of the variable mortgages to choose?
There are so many types of variable mortgages that it can be difficult to know where to start your research. The market is also changing all the time, so speaking to an advisor can help to unravel the many options you have. For initial research you can compare mortgages online and use a mortgage calculator to work out the potential monthly payments, this will help you get an idea of the market before looking into t more closely.
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