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Variable rate mortgages explained

A variable rate mortgage is one where your interest rate can move up or down over time, which means your monthly payments are also likely to change over time. There are three main types of variable mortgages: standard variable rate, tracker mortgage, and discounted mortgage.

A standard variable rate is a rate you typically move onto once your introductory deal finishes. It’s usually higher than other mortgage rates, but there are typically no Early Repayment Charges (ERC) if you repay your mortgage in full.

With a tracker mortgage, your mortgage rate tracks an external interest rate, usually the Bank of England base rate, plus a set percentage. If the base rate falls or rises, so will your mortgage payments.

Finally, with a discounted mortgage, you pay the lender’s standard variable rate minus a set percentage. The rate you pay may move up and down, but unlike the Bank of England base rate, the standard variable interest rate is set by the lender and can be changed at their discretion.

The key difference between fixed and variable mortgages is that, with a fixed rate mortgage, you know exactly how much you need to pay back each month - but variable rate mortgage rates may frequently change, meaning your payments can go up and down over time.

One of the biggest benefits of this type of mortgage is that, when you look at fixed and variable interest rates, the initial rate can be lower on a variable deal. Variable rate deals may allow larger overpayments, meaning you can pay off your mortgage early and keep your interest costs lower. This could be a good choice for you if you have a lot of savings or are a high earner and keen to pay off your mortgage early.

The downside, of course, of variable mortgages is that your payments can change over time. That can make it difficult to budget, and if you prefer the security of knowing that your payments will be the same for a set period, a fixed rate mortgage may be the better choice for you.

Variable rate mortgage process

You should look at all three types of variable mortgages. You may be able to get a better deal with a discounted rate mortgage than with a tracker mortgage, for example.

Unless you choose a tracker mortgage, your variable interest rate mortgage isn’t tied directly to the Bank of England base rate, so it won’t always move in line with changes to the base rate. Each lender determines its own standard variable rate, so it’s important to look at a broad range of lenders to determine the best deal for you.

You may be able to change to a different deal, particularly if you’re on the standard variable rate, without having to pay any Early Repayment Charges.

Variable rate mortgage eligibility criteria

The eligibility criteria for variable rate mortgages are determined by individual lenders. However, each lender will be looking to assess whether you can afford the payments on your mortgage - particularly as these aren’t set monthly payments, they’ll need to know that you can afford them even if the rate goes up.

You’ll need to provide evidence of your income for the last 3 to 6 months, as well as bank statements to show your outgoings. Your lender will also consider other factors such as the value of the property, the amount of deposit you have and your credit history.

You can use our calculators to work out how much you’re likely to be able to borrow, whether you’re a first time buyer or looking to remortgage your home.

Finding the best variable rate mortgage deal

Before you make your application, it’s a good idea to ensure your finances are in the best possible health. You should carry out a credit report using Equifax, Experian, or TransUnion, each of which will provide you with a detailed report. You should check this carefully for any errors, as even small discrepancies can impact your ability to qualify for a mortgage.

Once you’re ready to go ahead, contact us here at L&C - we want to help you find the best variable interest rate for your needs. When you use our mortgage finder, either online or over the phone, we’ll ask you some questions to understand your circumstances. Then we’ll scour over 90 lenders, to find the best variable interest rate mortgage for you. We always look at current variable mortgage rates from each lender we work with to ensure that you have the most up-to-date information.

Variable rate mortgage repayments

As with any other type of mortgage, you’ll make monthly payments on a variable rate mortgage - the difference is that these aren’t fixed, and may fluctuate from month to month. Your lender will let you know if there are any changes to your rate, and if you have a tracker mortgage that fluctuates in line with the Bank of England base rate, you can expect your payments to change the month after changes take place to the base rate.

Your repayments work in the same way as any other mortgage - you’ll make monthly payments until your mortgage is paid off.

If you have a standard variable mortgage, you likely won’t have to pay any Early Repayment Charges if you want to pay your mortgage off in full early, or if you wish to change mortgage - but you might if you have a discounted mortgage or a tracker mortgage, so this is worth bearing in mind.

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Apply for a variable rate mortgage with L&C

If you’re looking for a variable rate mortgage, we can provide all the help and advice you need to find the best deal.

You can see all the top variable rate mortgages on our best buy tables, and apply online for the mortgage you want in just a few simple steps. Our advisers are on hand to talk through the mortgage options available to you and give you any support you need. Our help doesn’t end there – we’ll see you through the mortgage application process from start to finish, ensuring everything goes smoothly.

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Frequently asked questions

What is the current standard variable mortgage rate?

Each lender determines its own standard variable mortgage rate so the current rate will depend on who you hold your mortgage with. Your lender can provide you with their current standard variable rate, or if you’re looking to take out a mortgage, we can support you by searching hundreds of lenders to find the best rate for your circumstances.

How do standard variable rate mortgages work?

The standard variable rate is the rate you usually move on to once any introductory mortgage deal you’ve been on finishes. They work in the same way as other mortgages, so if you have a repayment mortgage you make monthly payments until your mortgage is paid off. Bear in mind though that the standard variable rate is generally more expensive than other types of mortgage rate so you may want to consider remortgaging at this stage. Contact us to find out more about your options for remortgaging your home.

How often do variable mortgage rates change?

It’s up to lenders to decide when they’ll change their variable mortgage rates. Unless you’ve got a tracker mortgage, they don’t necessarily have to move in line with changes in the Bank of England base rate. If you prefer more certainty in your monthly payments, a fixed rate mortgage may be a better option for you.