Variable Interest Rate Mortgage

Now that the Bank of England base rate has plummeted to the lowest levels in history, it is expected that it can only now rise. Therefore, this may be a risky time to consider taking out a variable interest rate mortgage. A variable interest mortgage can take one of two forms. Either it can track the base rate or the lender's standard variable rate (effectively the lender's default mortgage rate). Whichever of these you choose, there will usually be a cap or 'collar' imposed on the rate, so that interest payment will not fall below a certain level. Unfortunately those on a variable interest rate mortgage that tracks the base rate at the moment are unlikely to have benefited fully from the recent base rate decreases, due to this collaring system.

You could make this type of mortgage work in your favour by choosing a mortgage with an introductory period lasting a relatively short time period. This would mean that you are still likely to get a competitive interest rate and will not be tied into this particular variable interest rate mortgage deal for too long. Of course there are advantages and disadvantages of both mortgage types, but if you are willing to take on the risk of fluctuating interest payments and have enough savings and income to cope if the interest rates should reach unexpectedly high levels, this is an option you may wish to consider. If you would like to find out more about the variable interest rate payments that are currently being offered in the market, simply fill out our short form and we will connect you to an experienced adviser from the SimplyFinance network.

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Variable Rate Mortgage: The Basics

• You may benefit from falling interest rates. With a variable rate remortgage, your interest rate will rise and fall with the national base interest rate. If the base rate falls, your rate will also decrease, thereby saving you money.
• You may run into some financial uncertainty. If the base interest rate rises, your monthly payments will increase as well. The instability of the interest rate you're paying may cause some uncertainty if it suddenly increases dramatically.
• Many lenders variable rates are not competitive. If you opt for a variable rate remortgage, the interest rate you begin with my not necessarily be competitive with other lenders. The lure of a variable rate is the possibility that your rate could decrease if the base rate decreases.