The Variable Rate Remortgage vs The Lender Variable Rate

There can often be confusion when there is talk about variable rate loans.  On the one hand there are remortgage offers of variable rates and then there is much said as to the high risk involved when a homeowner ends up reverting to their lender’s variable rate.  It can all sound so confusing until one understands that these are two very different situations.

A variable rate remortgage has an interest rate that changes according to a rate above the interest level set by the Bank of England’s Monetary Policy Committee (MPC).  This is a remortgage deal that will allow a homeowner to experience a savings in their interest rate payments if the MPC should lower the standard base interest rate.

A tracker rate remortgage can have savings for a homeowner if the rate falls whereas in contrast with a fixed rate remortgage does not.  So when the MPC lowers the interest rate a tracker remortgage would then have a lower interest payment but the fixed rate remortgage would not lower as it is set and does not fluctuate. 

While a variable rate remortgage allows savings when the MPC lowers the interest rate it also can cost more if they raise the rate.  A tracker’s interest rate can lower or rise according to the rate set by the MPC.  Many homeowners find this a very good type of remortgage for their needs because of the savings that can be had if the interest level of the Bank should lower.  Tracker remortgages have lower interest rates than fixed rates. 

When talk goes to a lender’s variable rate the discussion is centering on the interest rate of a particular lender.  That rate rises and falls according to the lender’s needs or wants and has no relationship to the movement of the interest rate set by the MPC.  A lender’s variable rate can move up and down as often as the lender chooses and without warning. 

The way a homeowner’s mortgage becomes associated with a lender’s variable rate is that when a remortgage deal ends it almost always reverts to the lender’s variable rate.  If the homeowner does not seek out another remortgage deal then they will have to pay on the lender’s variable rate since they no longer have a remortgage deal in place.  For instance if a homeowner obtains a 3 year tracker remortgage then after that three years they will revert to their lender’s variable rate if they do not seek out another remortgage deal.

A variable rate remortgage can be a very good remortgage deal for a homeowner.  They typically offer the lowest interest rates for a remortgage.  When a homeowner reverts to a lender’s variable rate after the end of their mortgage deal it can be a risky venture.  Since a lender can change their variable rate at any time without regard to the Bank of England’s MPC’s decisions then a homeowner can without warning have their interest rate fluctuate up and down.  This is a risky type of interest rate to have associated with a mortgage.  It would do well for a homeowner that has had their mortgage deal end to seek out a new remortgage deal and move away from their lender’s variable rate.


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