Variable Rate Mortgages
What is a variable rate mortgage?
A variable rate mortgage is a type of home loan where the interest rate fluctuates over time, influenced by various factors such as changes in the BOE base rate and market conditions. Unlike fixed-rate mortgages, where the interest remains constant for a specific period, variable rate mortgages offer more flexibility as the interest rate can go up or down during the mortgage term.
Understanding the Bank of England Base Rate
The Bank of England (BOE) base rate is the interest rate set by the BOE’s Monetary Policy Committee (MPC). Changes in the base rate influence the cost of borrowing for banks and, in turn impact variable rate mortgages directly linked to it. It serves as a key indicator of the UK’s economic health and can influence inflation and economic growth visit the BOE webstie for more information on base rate changes.
Types of Variable Rate Mortgages
Tracker Rate Mortgages
Tracker rate mortgages are directly tied to the Bank of England's base rate, and the interest rate moves in sync with changes in the base rate. As the BOE rate fluctuates, your mortgage payments will also rise or fall accordingly. Tracker mortgages are known for their transparency and are an excellent option for borrowers seeking a clear link to the broader market.
Discounted Rate Mortgages
Discounted rate mortgages offer a discounted interest rate for a specified period, typically lower than the lender's standard variable rate (SVR). The discounted rate is applied as a percentage below the SVR, resulting in lower monthly payments during the discounted period. After the discount period ends, the interest rate will revert to the lender's SVR.
Advantages of Variable Rate Mortgages
- Variable rate mortgages offer flexibility with the potential for lower interest rates, especially during periods of economic stability or rate decreases.
- Many variable rate mortgages allow for early repayment without incurring excessive fees, offering borrowers more financial freedom.
- Discounted rate mortgages can provide cost savings during the initial discounted period.
Disadvantages of Variable Rate Mortgages
- The main drawback of variable rates is the uncertainty of interest rate fluctuations, leading to potential higher mortgage payments.
- Variable rates can make budgeting more challenging, as monthly payments may change, impacting household finances.
At Home Guru, we’re dedicated to providing you with expert mortgage advice and support throughout your mortgage journey. Whether you’re looking for the perfect variable rate mortgage or seeking assistance with other mortgage types, our team of experienced advisers is here to help. Ready to explore the best mortgage deals available? Visit our Mortgage Deal Finder Calculator page to discover the latest offers and find the perfect mortgage deal for you or contact our team of expert advisers.