What are the advantages and disadvantages of a variable rate mortgage?
Opportunity to save money - Your rate is not fixed, so it can fall at any time, giving you the opportunity to save money.
Lower initial rates - Tracker and discount rates usually start with lower cost introductory periods - so a 2 year tracker-rate is typically lower than a 2 year fixed rate, for example.
Less chance of ERCs - There are no ERCs on an SVR mortgage as it has no set period - so you can remortgage whenever you choose. This may be a good option if you’re expecting a change in the market or plan to move soon. Discount and tracker rates are more likely to include ERCs, especially on introductory deals.
Caps can reduce your risk - If your tracker or discount rate has a cap (or ceiling), your variable rate will not rise beyond this point. For example, if you have a tracker set at 1% above the base rate, but with a cap of 5%, your mortgage wouldn’t rise if the base rate rose above 4%.
No certainty of rates - Whatever type of variable rate mortgage you choose, there's always a chance the rate could rise. This means your mortgage repayments can go up at any time, potentially making them unaffordable.
Not always cheaper - Although tracker and discount rates can be cheaper to begin with, SVR rates are not usually lower than fixed-rate deals, even initially. This is because you’re paying extra for the flexibility to leave anytime and make overpayments.
You may need to pay ERCs - If you’re on an introductory tracker or discount variable rate, there are often ERCs if you want to remortgage before the deal ends. Only an SVR guarantees that you won't have to pay ERCs.
Collars can minimise your savings - When you compare variable rate mortgages be sure to calculate the impact of any collars - most commonly found on trackers. As your rate can never fall below the collar, they may reduce the amount you save if the base rate falls.
Need more help?
Variable rate mortgages have interest rates that can change at any time. Fixed-rate mortgages have a set interest rate that cannot change for a fixed period of time.
SVR mortgages allow you to repay your mortgage early, either by remortgaging or through overpayment, without fees.
A tracker or discount mortgage usually has ERCs if they have a set length. This is known as the introductory period, and remortgaging before its end date often results in charges.
Usually it’s best to get a fixed rate mortgage if you’re on a fixed budget or prefer knowing your exact outgoings.
If you have low expendable income, your repayments may become too expensive if your variable rate rises by just a few percent.
Some people find it worthwhile paying a slightly higher fixed-rate, compared to a lower variable rate that could rise at any time.
Learn about different mortgage types
are a type of loan used to buy a property. The mortgage is secured against the value of the property.
are designed to help give you that first step on the housing ladder.
are for when your current mortgage deal comes to an end.
are where you only pay back the interest each month. When your mortgage term comes to an end, you still owe exactly what you borrowed at the start.
aren't that different from a regular mortgage. But there are some important differences.
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YOU SHOULD THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME/PROPERTY. YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE.
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