What is a Lender Variable Rate

When a homeowner secures a remortgage they obtain a specific type of remortgage product.  Perhaps they obtain a fixed rate remortgage where their interest rate will stay fixed for a time period or term.  Other homeowners might choose a tracker remortgage where the interest rate on the loan will track and follow the movement of the Bank of England’s standard base interest rate for a certain period of time.  Should the Bank of England’s rate regulators increase the rate then a homeowner with a tracker will see their interest rate go up and their monthly repayment amount will increase.  If the Bank lowers their rate then the tracker remortgage will have its interest rate decrease.

All mortgages as well as remortgages are taken out for a length of term and the product is for a term as well.  A homeowner could secure a 30 year mortgage on a life fixed rate which means they will be paying back the loan for 30 years and for the life of the loan the interest rate will never change.  The previous example should help you understand how other mortgage or remortgage loans are handled.  A 20 year, 5 year fixed rate mortgage will mean that the life of the loan before it is fully paid off is 20 years and the interest rate will be fixed for 5 years.

So what happens to a loan that is still being paid back but has a term end on the interest rate?  Whether it is a tracker loan or a fixed rate loan, once that term ends the agreement for the interest rate with that loan ends.  At this point the loan will revert to what is referred to as the lender’s variable rate.  This is an interest rate set by the lender that can move up or down at the discretion of the lender and is not tied to the Bank of England’s rate at all.  Should the lender decide to change their variable rate they can.  It is called variable for that reason; it can change at varying amounts and at times when the lender calls for a change.  This is usually when the lender is experiencing higher costs in lending money and wants to pass on that cost to borrowers.

When a term ends for a mortgage, a homeowner’s mortgage will revert automatically to the lender’s variable rate.  It will stay there until the homeowner decides to remortgage.  Some people decide to stay on the lender’s variable rate because more often than not it is usually at a cheap rate, but it is risky since it can change at the lender’s will.  For those that choose to gain benefits offered by remortgaging to a tracker or a fixed rate, they can do so by either staying with their current lender or shopping around for better deals and moving to a new lender.  Once the deal has ended and the homeowner is on the lender’s variable rate there are no fees or penalties for switching to a new remortgage deal.

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