| This type of
mortgage interest rate is also often referred to as the standard variable rate.
The variable rate of interest rises and falls in tandem with the base rate that
is set by the Bank of England. The mortgage lender will charge their rates at
a certain level above the Bank of England base rate, 1 or 2%, for example. There
is an element of risk with this type of rate in that the mortgage rate can fluctuate,
and the borrower can either gain or lose according to the fluctuations in the
base rate.
The variable rate mortgage offers the consumer a variety of advantages and
disadvantages. One advantage is the flexibility that the variable rate mortgage
offers the lender; with this type of mortgage there are no early redemption penalties,
so you are free to switch mortgage providers whenever you please. Also, this type
of mortgage can let you benefit from low interest rates should the Bank of England’s
base rate fall, enabling you to benefit from a cheap mortgage UK. Alternatively,
it is also possible for the Bank of England base rate to rise rapidly and without
warning, causing lenders to pay higher rates than contemporaries who might have
opted for a fixed rate mortgage. Furthermore, it can also be difficult to predict
spending patterns with a variable rate mortgage UK.
If you are not happy with your mortgage repayments fluctuating with every month
but still want to benefit from the advantages that a variable rate mortgage offers
then there is a further option offered by some lenders. This is to have your payments
altered according to the base rate only once in every year. This can aid budgeting
but can also mean quite large differences in payments from year to year.
• Variable rate
• Fixed rate
• Discount rate
• Capped rate
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