Standard Variable Rate Remortgage
As with mortgages there are many different types of Variable Rate remortgages available on the market. A Variable Rate remortgage is one whose interest rate fluctuates usually in line with the mortgage lender’s Standard Variable Rate.
A variation on the Variable Rate remortgage is the Tracker Rate remortgage. These are tied to the Bank of England’s base interest rate and usually set a fixed rate above the base rate.
Standard Variable Rate remortgages are influenced by shifts in the Bank of England’s base rate but they are not fixed to it and are ultimately set by the mortgage provider.
Usually a lender’s Standard Variable Rate is two or three percentage points above the base rate of the Bank of England; the base rate plus 2.5 per cent would be a normal offer.
One drawback with the Standard Variable Rate is that payments will vary from month to month. Your mortgage lender’s Standard Variable Rate is open to constant fluctuations, influenced by the base rate.
The uncertainty of a Variable Rate can put people off. A Variable Rate mortgage or remortgage may not be ideal for you if you need to have a accurate idea of your monthly outgoings or if you are on a budget with little leeway.
Standard Variable Rate mortgages can become expensive because of their ever changing rates. Lenders can increase the rate even when the base rate has remained the same.
Even if the base rate goes down, one may not see their variable rate mortgage go down by the same percentage, unlike a Tracker remortgage, which is firmly tied to the base rate.
Of course there are advantages to a Variable Rate. Often there are fewer restrictions or extra charges with a Variable Rate mortgage, they may not charge exit fees if you end the mortgage earlier than planned unlike many fixed rate mortgages.
You can often make extra payments with a Variable Rate, enabling you to pay off your mortgage earlier.
As far as you can, it’s sensible to work out what your outgoings will be with a mortgage, although this can be difficult with a Standard Variable Rate mortgage or remortgage.