Variable Rate Mortgages

Variable rate mortgages are the industry standard. That means that even if you opt for an altogether different kind of mortgage, e.g. capped, discounted or fixed, the repayments will generally revert to the variable rate at the end of an agreed term. This will usually be in the region of two – five years, but don’t ever let convention dictate your mortgage plan! You’re perfectly at liberty to negotiate shorter or longer terms as you see fit. Of course that all depends on whether you think the variable rate mortgage is right for you…

It should come as no surprise that a variable rate mortgage does exactly what it says on the particulars; it varies in line with the Bank of England interest rates. Sometimes it goes up, and sometimes it goes down. What that means for you is the chance of lower monthly repayments, offset by the chance of sometimes higher monthly repayments. But whether the chances of lower and higher payments are equally weighted is open to argument. Assuming you’ve got one eye on the markets, and one eye on the alternatives, you’ll never have to worry about the variables in a variable mortgage!

Don’t forget a variable rate mortgage isn’t just variable; it’s flexible too. While the precise specifications will obviously vary according to your mortgage requirements, most variable rate mortgages give you the opportunity to pay off your debts early and switch to another mortgage. That in itself helps take the sting out the variable rate. You can chop and change your mortgage to suit your circumstances. Make the most of the lower interest rates and rock bottom mortgage payments; then reconsider your options when the rates change. And, just to make it even easier, you’ll find base rate monitoring made easy with online guides to interest rates and base rates – and of course your broker can help too.

It is important to bear in mind that the variable rate mortgage doesn’t so much mirror the base rate as shadow it. In some schemes your variable rate repayments will be set at about 1.75% above the interest rate, although you should be able to push your broker into finding something a little lower. Even among the variable rates, whether offered by the high street lenders or online, there is a huge disparity, so be prepared to shop around and challenge brokers, lenders and advisors to find you the best rat deal.

Variable rates are invariably great; they perform well in the good times and they’re easy to switch if times get hard. Depending on the economic climate at the time of the agreement, they can easily outperform any other mortgage on the market. Even if the economy stumbles, you won’t necessarily feel a thing. You can even mitigate for hard times by investing whatever you save month on month (thanks to low interest rates) and then using your ‘fallback fund’ to top you up if rates rise. You might even find that the disparity between the peaks and troughs evens out at a manageable monthly payment that will rival any other mortgage. Check out the figures for the last few years and find out for yourself…

If you’re at all unsure about signing up to the variable mortgage plan you needn’t be. Because variable rate mortgages don’t tend to carry early repayment charges, they’re completely flexible; change scheme, pay off your debts early, or play the variable rates to your advantage. In short, do whatever you want to do. With a variable rate mortgage, you get all the options.