Variable-rate mortgage

What is a variable mortgage?

A variable mortgage is a mortgage whose rate goes up and down over time.

Some variable-rate mortgages ('tracker' mortgages) will change whenever the Bank of England's base rate changes.

With most variable-rate mortgages, though, it's up to the lender to decide whether to pass on an entire rate cut / rise, or some of it, or none of it. However, they won't want their mortgages to become uncompetitive - and they'll know people are watching closely.

Is a variable mortgage right for me?

A variable rate can be attractive when the Bank of England's base rate is low and / or likely to drop, possibly taking variable rates (and the cost of variable mortgages) down with it.

If your payments drop, this can be a golden opportunity to 'overpay' your mortgage: keep on making the payments at the original level and you'll be paying off more of the mortgage without paying more than you're used to. Overpaying can reduce the overall cost of the mortgage by reducing the amount that's attracting interest charges - and let you pay it off earlier than originally expected.

Just be aware that the cost can go up as well as down. So once you know how much your monthly payments would be with a variable rate, ask yourself: "Are these payments as high as I can comfortably afford?"

If the answer's "Yes", then a variable rate could be a dangerous idea: if the rate went up, how would you cope?

Of course, you would be free to look around for a new mortgage if that happened. Most fixed mortgages charge an Early Repayment Charge (ERC) if you switch to a different mortgage before the end of the term, but this is unlikely with variable mortgages.

Mortgage advice

Not sure whether a variable rate is the right way to go? Click here for advice.

Benefits of a variable rate

  • Cost should drop when the base rate does
  • Unlikely to come with an Early Repayment Charge
  • Unlikely to attract arrangement fees

Drawbacks of a variable rate

  • Monthly payments can go up as well as down with a variable-rate mortgage
  • Standard Variable Rate is usually higher than rates available on a tracker or fixed rate mortgage deals

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Looking for a new variable-rate mortgage to replace your old mortgage? You could reduce your monthly payments, consolidate your debts, benefit from a lower interest rate, and/or free up cash that's tied up in your property. Click here

Mortgage term - short or long?

Plenty of variable mortgages last for 25 years, but some last for 15, or 40, or something in-between. There can be good reasons to choose a shorter mortgage - or to go with a longer one.

  • Shorter repayment period. You'll pay more each month, but less in total (as the mortgage will spend less time accruing interest). Plus, it means you'll own the property outright sooner - which means you can stop making mortgage payments altogether!
  • Longer repayment period. Your variable mortgage will cost less each month, but more in total (as it'll spend longer accruing interest).

Of course, you don't have to stay with the same variable mortgage all the way through. Many people start with a longer repayment period so they can reduce the initial cost of homeownership, then switch to a shorter mortgage once they can afford it.

Since variable-rate mortgages tend not to come with an early repayment charge, you're free to change to a new mortgage without having to pay for it.

And that new mortgage doesn't have to be a variable rate. You may choose to remortgage with a fixed-rate deal, or a tracker - or another variable rate.

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Why not try our Mortgage calculator?

Calculating your monthly mortgage payments is simple.
How much might your variable-rate mortgage cost?

Variable-rate mortgage: repayment or interest only?

A mortgage (whether it's tracker, fixed or variable rate) can be either repayment or interest only.

  • Interest-only. Your monthly payments will be lower as you're paying off just the interest on your variable mortgage. However, this means you're not paying off the capital - the actual cost of the property itself - so you'll need to make sure you have enough (through savings or investments) to buy the property at the end of the mortgage.
  • Repayment. Your monthly payments will be higher, as you'll be paying off the capital as well as the interest all the way through your mortgage. However, the property will be yours as soon as you've made the final payment.

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THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT. DEBT CONSOLIDATION MAY INCREASE THE AMOUNT TO BE REPAID IN THE LONG TERM. Subject to status. An arrangement fee of 495 is payable on completion. For debt consolidation mortgages the fee is 1.5% of total advance (minimum 1295, maximum 1,695). No fee for returning customers. The actual rate available will depend upon your circumstances. Ask for a personalised illustration. Calls may be recorded.

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