Mortgages >> Variable Rate Mortgage >>
A variable rate mortgage is often the first type of mortgage you will come across when looking for a mortgage whether you choose to use a mortgage broker or not, as it is the staple mortgage product for most mortgage companies.
Put simply a variable rate mortgage is a mortgage where the rate of interest you pay varies throughout the term of the loan. In terms of a UK mortgage, the amount of interest you pay on your mortgage will be linked to the Bank of England base rate, so when this moves up or down then it is likely that the rate of interest you pay on your mortgage, and therefore your monthly mortgage repayments, will do something similar.
An important point to remember though is that the Bank of England base rate is unlikely to be the rate of interest you pay on your mortgage. Although there are a variety of variable rate mortgages, the main one for most mortgage lenders is a standard variable rate mortgage. This mortgage is based on a rate of interest set by the mortgage lender which is often not directly related to the Bank of England base rate. It will however be higher than the Bank of England base rate and will almost certainly go up when the Bank of England base rate goes up and may come down when the Bank of England base rate comes down.
There are a number of variations on the variable rate mortgage theme. One of the easiest to understand is a tracker mortgage. A tracker mortgage, sometimes known as a base rate tracker mortgage – mirrors what the Bank of England base rate does at a defined percentage rate above the Bank of England base rate i.e. 1%. This means that if the base rate is 5% your tracker mortgage interest rate will be 6%. If the rate then moves up to 5.25% then your tracker mortgage interest rate will change to 6.25% and if it goes down to 4.75% then your tracker mortgage interest rate will be 5.75%.
Another variation on the variable rate mortgage is the capped rate mortgage. A capped rate mortgage also tracks the Bank of England base rate but has an upper limit, this means that if interest rates rise above a certain level your payments will not rise any further, however if interest rates go down, you can take advantage of any savings.
However before making a decision on the type of variable rate mortgage you would like you should seek professional advice from a mortgage broker or mortgage advisor. This article is only a general guide to variable rate mortgages so you are better informed once you find a local mortgage broker.
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