Should I Move From a Variable Rate

Homeowners are often paying their monthly mortgage payments based on their lender’s variable rate.  This occurs when a homeowner’s mortgage deal ends and they move to a variable rate.  For instance, a homeowner could obtain a 2 year fixed rate mortgage.  The rate of the mortgage is fixed for the two year time period, but after that the loan converts to the lender’s variable rate.  This is not to be confused with the Bank of England’s standard base rate.  This is the lender’s variable rate and it can fluctuate as the lender sees fit.  It is not dependent on the Bank’s rise and fall of the standard base rate but usually does move when the Bank changes their rate.  This is considered a very risky and unpredictable rate for a mortgage loan to be associated with and is not suggested for a homeowner for a lengthy period of time.  Should the rate raise substantially it is difficult to afford payments and the homeowner is wasting money spent on interest that could have been used elsewhere.

Many homeowners are unaware that they are paying their mortgage on their lender’s variable rate, nor do they realize how unpredictable that rate can be.  Their deal ends and they just continue paying payments.  Should the rate be lower than they had obtained during a fixed rate period they consider the new rate as helpful in lowering costs.  They should however worry about what could happen with a rate increase.

A homeowner can still benefit from a variable rate but should consider a tracker rate remortgage instead of paying a mortgage on a lender’s variable rate.  The tracker will fluctuate with the Bank’s rate versus being tied to a lender’s own rate increase or decrease which is unpredictable and can occur at any time.  Tracker rates are historically very affordable and attractive and come with benefits that a variable rate does not allow such as moving to a fixed rate without penalty or fees.

There are some benefits of a variable rate and that is the ability to pay overpayments toward the mortgage debt without penalty.  To pay off a mortgage or pay down debt, a variable rate will very rarely have any stipulations that involve there being a penalty or fee.  Yet, there are remortgages with a tracker or fixed rate that can have the same stipulations. 

It is estimated that there are many homeowners that have a mortgage tied to their lender’s variable rate having ended their mortgage deal.  It is also highly researched and proven that many homeowners are unaware of how an interest rate increase will impact their monthly mortgage payments.  It is entirely the decision of the homeowner to stay on the lender’s variable rate or to seek a remortgage.  That same homeowner should determine how an interest rate increase would impact their household budget should their mortgage payment be higher than it is now.  If there is considerable risk involved, then a remortgage should be considered.  For further assistance in this type of situation, seeking the help of a remortgage expert would be helpful and would be happy to offer assistance.