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What is a Variable Rate Mortgage?
A variable rate mortgage allows the interest rate you pay monthly to fluctuate up and down. Each mortgage lender
has their own Standard Variable Rate or SVR that they base roughly on the current Bank Rate. The Bank Rate is governed by the Bank of England. |
Every mortgage lender allocate their own standard variable rate and it is usually 1% - 2% over the set Bank Rate. For example, if the current Bank Rate is 4.95% - a mortgage lender's SVR would be approximately 5.95 to 6.95%. Some lenders who lend money to higher risk customers can charge a substantial amount more than 2%. A higher payment for the high risk purchaser; at least they can still get a mortgage..
The problem with a standard variable rate mortgage is that the rate is not very competitive so the lenders usually spice the deal up by offering things such as Cash Back and Discounted Variable Rate Mortgages.
Cash Back Mortgages
Does exactly what it says on the tin. Upon signing and completing the mortgage agreement you are awarded a lump sum of cash. This is ideal for people who need better cashflow or simply need to do home improvements or the like. However this type of mortgage is not usually recommended to people who wish to save more money longer term.
Discounted Variabe Rate Mortgages
Most of the UK's mortgage lenders tend to offer a discount from their own Standard Variable Rate.
Discounted variable rate mortgages operate similarly to tracker mortgages. However regarding a tracker mortgage,
the interest rate you have to pay is directly linked with the current Bank Rate, not the mortgage lender's SVR.
Things to remember when on a Standard Variable Rate
Achieving the best deal possible should be your aim when searching and comparing mortgages, be it a fixed rate mortgage, discounted variable rate mortgage, tracker or capped mortgage.
When your deal is coming to an end, it is paramount that you organise a transfer to some other deal be it with the current lender or a new one. Should you not do this, the current mortgage lender's standard variable rate will apply at the end of the term and you will be paying more than you need to.
Your current mortgage lender should let you know about this around 3 months prior to the end of the agreed term at the lower or discounted rate. This should give you more than enough time to sort out a remortgage and save you money.
Visit www.aph.org.uk and let us find you a variable rate cheap mortgage deal. | 
