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Is a variable rate mortgage the right choice for me?

June 7, 2008 by admin  
Filed under Mortgages

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Consumers in the UK can enjoy a choice of mortgage options these days, and no matter what your needs and circumstances there is a good chance that there is a suitable mortgage product on the market for you. When it comes to mortgages consumers can enjoy options such as the standard variable rate, the fixed rate, base tracker mortgages, capped rate mortgages, and more. The most popular of these are the variable rate mortgage and the fixed rate mortgage, both of which offer benefits as well as disadvantages.

The variable rate mortgage is a loan on which the interest rate can fluctuate throughout the term of the loan based on the interest rate set by the Bank of England. This means that if Bank of England interest rates fall, your mortgage interest rate will also fall, and therefore your monthly repayments will fall. However, if Bank of England interest rates rise, then your mortgage interest rate will also rise and your monthly mortgage repayments will go up. Depending on the size of your mortgage and the amount by which the interest rate falls or rises, the difference in your monthly repayments can be quite dramatic.

Variable rate mortgages are a good choice for those that can afford to take the risk of riding repayments and are able to manage their budget effectively even with fluctuating repayments on the mortgage. This is because consumers can make an impressive saving in the event of a drop in interest rates. However, it is important for those thinking about a variable rate mortgage to consider whether they will be able to keep up with repayments in the event of an interest rate rise, as this could really push up the monthly repayments on a large mortgage.

If, one the other hand, you want to know exactly how much you will be paying on your mortgage each month, and you don’t want to run the risk of being hit with rising interest rates then you may prefer to opt for a fixed rate mortgage, where the interest rate is fixed for the specified period or throughout the loan. These fixed rate mortgages are offered at a higher rate than the variable rate mortgages, but the interest rate will remain the same even if the standard variable interest rate rises. On the downside, if the variable rate should fall the fixed rate mortgage will still remain static, which means that you won’t benefit from any drop in monthly repayments.

Tags: Real estate, Floating interest rate, Business Finance, Mortgages, interest, variable rate mortgages, UK mortgage terminology, United Kingdom

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