With a variable rate mortgage the monthly repayment
amount is based on the lender's standard variable rate.
The lender's standard variable rate is based on the Bank
of England's base rate and will consequently move up and
down as the base rate moves up and down. Standard variable
rates vary from lender to lender but are typically 2
to 4 percent above the base rate.
Advantages With a variable rate mortgage you are
able to change mortgage at any time without being penalised
as there are no early redemption penalties. You can benefit
from a fall in the Bank of England's base rate that leads
to a subsequent fall in your lender's standard variable
rate.
Disadvantages With a variable rate mortgage
the Bank of England base rate can be unpredictable and can
increase rapidly, resulting in an increase in your monthly
payments. It is less easy to budget as the interest rate
can and will vary. A fall in the base rate will not always
result in an equivalent fall in the lender's standard variable
rate.
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