Expert Mortgage Advice & Variable Rate Mortgage Deals For You

A variable rate mortgage (also called an adjustable-rate mortgage) is a mortgage rate that can change over time, meaning it can decrease or increase depending on wider economic circumstances. So, it is advisable to have some savings set aside so you can afford an increase in payments if rates do rise.

Due to the extra risk of rates increasing, lenders will often offer lower variable rates than fixed rates. There are three subtypes of variable rate mortgages you should know about as they can provide people who are more risk-averse with another option aside from a fixed rate deal.

Tracker mortgages

This type of mortgage comes with a rate that increases and decreases in line with changes to the Bank of England base rate (so it tracks this external rate), meaning that your payments can fluctuate based on a measure that could be a bit easier to predict than lender’s internal decisions. If you think the base rate is due to go down in the next year or so a tracker mortgage could be a good choice. However, if you are interested in a tracker mortgage with a longer term the base rate will become increasingly harder to predict so it is worth considering all the benefits and risks when deciding on a tracker mortgage.

Standard variable rate mortgage

The majority of providers offer a standard variable rate (SVR). The fees associated with taking out, or remortgaging from, an SVR mortgage are often quite low. This is because a lot of them have low set up costs and no early repayment charges. Unlike a tracker mortgage an SVR is set up by each individual lender, so your rate can increase or decrease at any time.

The SVR is typically the rate your lender will provide when your initial mortgage deal ends, when it comes to both fixed and variable rate deals. Therefore, these deals will usually have higher interest rates than most other mortgage types on the market.

Discounted variable rate mortgage

Discounted variable rate mortgages are another form of variable rate mortgage. In this case the lender offers a discount on a certain rate, commonly the lender’s SVR, in the form of an introductory term. For example, a lender offering a 2% discount on its SVR of 4.5% would charge 2.5% to the borrower. An advantage of discount variable rate mortgages is if interest rates are cut then your rate will probably drop too.

Both discounted variable rate and tracker rate deals can range from two years up to the entire lifetime of the mortgage. This is because the end of the overall term could be as much as 30 years away, however, there is a greater likelihood that the interest rate will increase over time. So, the product could end up considerably more costly than remortgaging over several short-term deals. You should think carefully and do some calculations before committing to a variable for term deal, and ensure you have the option to remortgage penalty-free if you change your mind.

A capped deal is a variable rate, a discount or tracker mortgage which has an upper limit. So, the rate has a guaranteed ceiling it cannot exceed no matter what the tracked rate rises to. Capped deals tend to be offered most often and are most popular when people are nervous that interest rates could soar. The rate you pay moves in line with the base rate or SVR, but there is an upper cap which offers you some protection. Capped deals used to be more common but now they are fairly rare, so the question of whether you can get one or not might not even come up.