Variable Rate Mortgages

What does it mean?

A Variable mortgage is one that’s rate varies over a certain time period. The period is set out at the beginning of the loan and usually is one that is attractive to the mortgagee. The term for the variable part is usually between 2 and 5 years.

So how do they work?

Right this is easy, say for instance the “Bank of England Base Rate” is 5.25% then a mortgage company may set their rates at say 1% to 2% higher depending on the deal. So let’s say 6.25% for arguments sake. Then the Bank of England raises the base rate by 0.25% so it is now 5.5% that means that the new mortgage payment will be that of 6.5%.

These mortgages suit people who wish to take an informed risk. The good points are if the Base rate drops then so does the mortgage payments. What also must be remembered is that the payments will also rise when the Base rate increases as well. Another point to watch is that the mortgage company does not have to pass on the discounts. It is advisable to always read your mortgage offer.

 

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