Variable Rate Mortgage

A Variable Rate Mortgage is simply a mortgage product that is offered to the financial market at usually lower interest rates in comparison to a fixed rate mortgage. Variable Rate Mortgages have increased in popularity as interest rates have been at one of the lowest points for many years. As the Bank of England base rate has remained low, the competition in this particular financial sector has increased rapidly.

A variable rate mortgage is a loan that is issued by a lender which is secured against a form of your property. The standard variable rate part (SVR) is calculated in accordance with the Bank of England base rate. The base rate is currently at one of the lowest points it’s ever been; therefore variable rates that are set by lenders are also at one of their lowest.

SVR’s on these mortgages are typically lower than fixed rate mortgage and can therefore be very attractive to prospective borrowers; however the downside is that the mortgage rate can be changed at any time. This is due to the Bank of England’s base rate choices, if they were to increase their base rate, the SVR would also rise. Therefore, you will be paying more for your mortgage, however, if the rates were to decrease, your monthly mortgage repayments would also decrease due to the fluctuation of interest rates. However, if there was a reduction in the base rate, this would be of an advantage to you as the variable mortgage rate would decrease which in turn would reduce your monthly mortgage repayments.

When you have the found the property that you want to apply to mortgage against, it is often best to research lenders thoroughly for the best Variable Rate Mortgage product available. With the introduction of the internet, lenders are not only competing against each other for business in the high street but they are also facing competition from specialist loan companies that have been set up through the internet.

If you are daunted by the wealth of information available to you, it can often be beneficial to check with an independent financial advisor before you commit yourself to a lender. This can either be arranged through your existing lender or by visiting a mortgage broker. It is often best to make an appointment where you can discuss all the relevant details as there is a lot of information to digest with regards to any type of mortgage. If you already know exactly what you are looking for, you can head straight for the internet, where online applications are very welcome, this not only saves you and the lender time but you will usually be given an immediate response with regards to acceptance by the chosen lender.

When applying for a variable rate mortgage, you could be eligible to borrow 90 to 95% of the value of your home depending on lender and which particular product you have chosen. Your application will be based on your income of which if you are a sole applicant, you can potentially borrow 3.5 times your salary or more depending on lender. If you are applying in joint names, the lender could potentially loan you either 3 times your joint income or more depending on lender.

All financial institutions perform credit checks on potential borrowers regardless of what they are applying to borrow the funds for. This provides the lender with a guide to assess the risk involved when approving the mortgage. They will look at personal details such as monthly outgoings, employment history and any outstanding debt you may have. The lender will also have to assess the value of your home to ensure that it is compatible with the amount of loan applied for.

With this type of mortgage, there is often no redemption penalties imposed when repaying early or re-mortgaging. If you move property and want to re-mortgage to another lender or if you have the ability to repay your mortgage earlier than the set term, you will not be charged for doing so.