Variable Rate Mortgages

A variable rate mortgage is a type of mortgage where the interest rate can change over time. This means that your monthly payments could go up or down, depending on how the market changes.

When you're looking for a mortgage, it can be difficult to know where to start. There are so many different options available, and it can be hard to determine which one is right for you. At Echo Finance, we've helped countless people find the perfect mortgage for their needs, and we're here to help you too.

Our mortgage brokers are experts in the field, and they can help you to find a variable-rate mortgage that suits your needs. We'll take into account your financial situation and your goals, and we'll work with you to find a mortgage that gives you the best possible chance of success.

If you're interested in finding out more about variable rate mortgages, or if you'd like to speak to one of our mortgage brokers, please don't hesitate to get in touch at 0800 093 4914.

What is a variable rate mortgage?

Variable-rate mortgages are a type of mortgage where the interest rate can change over time. This means that your monthly repayments could go up or down, depending on how the market changes.

If you're considering taking out a variable-rate mortgage, it's important to be aware of the potential risks involved. If interest rates rise, your mortgage repayments could become more unaffordable, and you might struggle to keep up with them. However, if interest rates fall, your monthly payments could become more affordable

There are three main types of variable rate mortgages:

Tracker Mortgage

A tracker mortgage is (generally) linked to the Bank of England base rate, with a percentage added. This means that if the base rate changes, your interest rate will change by the same amount.

For example, if the base rate rises by 0.25%, your tracker mortgage interest rate will also rise by 0.25%. However, if the base rate falls, your interest rate will also fall. Tracker mortgages can have a fixed term, typically 2-5 years or they can be ‘lifetime’ trackers which follow the base rate for the whole term of your mortgage.

Discounted Rate Mortgage

A discounted rate mortgage gives you a discount off the Standard Variable Rate (SVR) for a set period of time, usually 1-5 years. For example, if the SVR is 4.5% and you have a 1% discount, your mortgage rate will be 3.5%.

After the discount period ends, your interest rate will revert to the SVR (unless you remortgage to another deal). Discounts are usually offered at the start of the mortgage term and may not be available if you want to remortgage during the term.

Standard Variable Rate Mortgage

The lender's Standard Variable Rate (SVR) is the default interest rate that your mortgage lender charges when your deal comes to an end. It can also be the starting point for a new mortgage deal with your existing lender, although this isn’t always the case.

Most mortgage deals have a lower interest rate than the SVR, which is why it’s important to consider remortgaging when your deal comes to an end.

The difference between variable rates and fixed-rate mortgages

With a fixed-rate mortgage, the interest rate is set for a certain period of time, usually between two and five years. This means that your mortgage repayments will stay the same for the duration of the fixed term, even if interest rates rise.

With a variable-rate mortgage, on the other hand, the interest rate can change at any time. This means that your monthly payments could go up or down depending on how the market changes.

What interest rate will I pay on my variable rate mortgage?

The interest rate you pay on your variable-rate mortgage will depend on the type of mortgage you have. For example, a typical variable-rate mortgage has an interest rate that is based on the Bank of England's (BoE) base rate. If the BoE base rate increases, your mortgage interest rate will usually increase as well.

Some variable mortgages are based on the LIBOR rate, which stands for London Interbank Offered Rate. The LIBOR rate is the interest rate that banks charge each other for loans.

You may be on the lender's Standard Variable Rate (SVR), which is the interest rate that the lender charges when your deal comes to an end.

Your mortgage interest rate could also be affected by other factors, such as:

• The type of variable-rate mortgage you have
• How long you have left on your mortgage term
• The amount of equity you have in your home

If you're thinking about getting a variable-rate mortgage, it's important to understand how your interest rate could change over time. This will help you budget for your mortgage payments and make sure you can afford any potential increases.

Should you get a variable mortgage?

Whether or not a variable mortgage is right for you will depend on your personal circumstances. Here are a few things to consider:

• Are you comfortable with the idea of your monthly repayments changing?
• Do you think rates are likely to rise or fall in the near future?
• Would you be able to afford your payments if they increased by a significant amount?
• Is your situation likely to change in the near future (e.g. you might get a pay rise or you might have children)?
• Are you planning on staying in your property for a long time?

If you're not comfortable with the risks involved, or if you're worried that you might struggle to afford your repayments if rates rise, then a fixed-rate mortgage could be a better option for you.

Do variable mortgages have early repayment charges?

Yes, typically variable mortgages with a lower introductory period will have early repayment charges. This is to compensate the lender for offering you a lower rate. If you're considering a Lifetime Tracker, these generally do not have early repayment charges.

If you're considering remortgaging before your deal ends, it's important to check whether there are any early repayment charges. These can be significant, so you'll need to weigh up whether the savings you'll make by remortgaging are worth the costs.

What are the benefits of a variable rate mortgage?

There are a few benefits:

• If interest rates fall, you'll benefit from lower monthly repayments.
• Variable mortgages often have lower introductory rates than fixed-rate deals, so you could make some significant savings in the early years of your mortgage.
• They can be more flexible than fixed-rate deals, so you might be able to make overpayments or take payment holidays.

What are the disadvantages of a variable-rate mortgage?

There are also a few disadvantages:

• If interest rates rise, your monthly repayments will increase. This could make it difficult to afford your payments if you're on a tight budget.
• Variable-rate mortgages tend to be less popular than fixed-rate deals, so there might be fewer deals to choose from.
• They can be more complex than fixed-rate mortgages, so it's important to understand how they work before you apply.

Do your research and speak to a mortgage advisor before you decide which type of mortgage is right for you.

What is SVR?

The standard variable rate (SVR) is an interest rate that is specific to each lender. This is the rate that you will revert to after any deal or incentive period on your mortgage runs out. The SVR can go up and down, depending on the Bank of England’s base rate, and this will usually happen at the same time.

The SVR is typically higher than the rate you would get on a fixed, tracker or discount mortgage deal, and can change at any time, which is why many people choose to remortgage to a more favourable rate when their deal comes to an end.

How can I choose the right variable rate mortgage for me?

At Echo Finance, we understand that taking out a mortgage is a big decision. That's why our mortgage brokers are here to help you every step of the way.

We'll give you impartial advice on which mortgage product is right for you, and we'll help you to find the best deal possible. Contact us today to speak to one of our mortgage brokers.