Variable Rate Mortgages

Purchasing a home is an exciting time. However, finding the right mortgage can be stressful and time consuming. Best Quote Mortgages can help you find the financing to best suit your individual needs. Variable Rate Mortgages (VRM) are a popular choice for home buyers looking for a flexible option.

What is a Variable Rate Mortgage? - A variable rate mortgage is one that has varying interest rates. This means over the term of your mortgage, your monthly payments may rise or fall based on the prime rate. Generally based on a 5 year term, variable rate mortgages allow you flexibility but at the same time allow you to secure a low interest rate.

What is an Introductory Variable Rate Mortgage? - An introductory variable rate mortgage is one that is based on a discounted rate from the Prime rate. Usually a 5 year fixed deal, the first 3 years are closed but year 4 and 5 are open with no pre-payment penalty.

What to watch for - Make sure you understand what a Variable Rate Mortgage is and how it an Introductory Rate works. Don't be duped by Mortgage lenders and brokers offering extremely low rates, anything under 2%, should raise red flags. These rates may be correct, however they may only be Introductory Rates available for a short amount of time, soon to rise to rates matching the prime lending rate. There may be other Variable Rate Mortgage deals available with a higher Introductory rate which will benefit you in the long run. Speak with a Mortgage Broker about all your options.

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The Pros and Cons of Variable Rate Mortgages
Variable rate mortgages are more of a risk than fixed rate deals, but can potentially harvest better rates if the Bank of England base rate doesn't jump. Mortgage arrangement fees are usually avoided as well, so they can be the overall cheaper option.

Pros:
Monthly payments will fall if the Bank of England base rate falls
Early redemption fees are unlikely if you'd like to change to another type of mortgage
Upon purchase, interest on variable-rate mortgages is typically lower than lender fixed-rate equivalents. This means you should pay less in the beginning
The majority of variable rate mortgage deals do not charge an arrangement fee
Great way to save money in the short term especially if you know your income will increase before the end of the variable rate mortgage term

Cons:
Monthly payments will rise if the Bank of England base rate goes up
Some deasl incorporate a 'cap' on how high payments can go
Estimating how much your payment will be each month can be difficult, making budgeting a challenge
After the initial 3 or 5 year period, interest more often than not significantly increases