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Variable Rate Mortgages

What is a Variable Rate Mortgage?

With a variable rate mortgage the amount of your repayment moves either up or down in line with changes in interest rates generally. When the Bank of England changes the base rate, lenders will choose whether to follow the change by altering the rates they charge their variable rate borrowers.

There are various types of mortgage including discounted variable rate mortgage standard variable rate mortgages and tracker mortgages. Offset mortgages also tend to be on a variable basis.

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You can get a variable rate mortgage on an interest only or repayment basis.

Who Are They Suitable For?

• A variable rate mortgage gives you a bit more freedom than a fixed rate mortgage because there are unlikely to be any early repayment charges if you want to change providers early in the mortgage term.
• A variable rate mortgage would allow you to benefit from interest rate falls. If you think that interest rates are high and likely to fall in the near future, this could be an important factor. Of course, your lender has to pass the cut on to its customers! 
• Variable rate mortgages tend to have lower set-up fees than fixed or discounted mortgages, but this isn't always the case. 
• You can get a variable rate mortgage on an interest only or repayment basis. Go to our mortgage repayment calculator so see what the monthly payments would be.

For the best current deals for around compare variable rate mortgages best buys.

What Should You Look Out For?

There are some general things to watch out for with mortgages, as well as few specific pitfalls of variable rate mortgages, which you need to understand before committing yourself:

• It is much more difficult to predict the future cost of your borrowing as your repayments can increase and decrease in line with market conditions. To help keep track of your monthly outgoings, take a look at our budget planner. 
• If you take out a variable rate mortgage when rates are low, it's likely that you'll end up needing to find a bit more each month as rates rise.  

Make sure you understand the key factors to consider when you're sorting your mortgage out, These will help you to be certain that you're thinking about all the key questions to ask yourself.

Moneyfacts.co.uk has a range of guides on other types of mortgages from fixed rate mortgages, discounted rate mortgages, first time buyer mortgages to offset mortgages, self certification mortgages and buy to let mortgages.