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Variable Rate Mortgages

Whilst most new mortgages are entered into under a fixed rate agreement, existing mortgages usually continue under variable rates. What this means in simple terms is that the rate changes in line with the Bank of England’s base rate, which it will typically exceed by around two percent.

There are advantages and disadvantages to variable rate mortgages relative to fixed rate mortgages or any variations thereof. The prime benefit of a fixed rate agreement is that borrowers know that their repayments will not change and are therefore able to plan ahead. This is especially useful when the task of meeting one’s mortgage commitments is particularly onerous and any increase in the repayment amount would place one’s ability to keep up payments into jeopardy. Where a variable rate arrangement differs is that the amount paid by the borrower adjusts itself with the base rate. Whilst this can reduce as well as increase, it does still have the potential to create uncertainty.

Although the Bank of England base rate is the measure by which variable rate mortgages are set, it is the within the gift of the lender to pass on or not to pass on increases or reductions in that rate to the customer.

It is therefore worth sounding out the policy of a particular lender before signing up to any agreement. Some companies will guarantee an increase of no more than two percent above the base rate, for instance, which provides some reassurance.

One option one might be advised to consider when comparing and contrasting variable rate mortgages is whether overpayment is permitted without incurring any penalties. If one has the resources available to do it one could save a considerable amount of money by overpaying when rates are low, leaving less remaining to be paid when they later increase, if indeed they do.

Mortgage comparison sites are a useful means of gathering the facts you will need to make an informed decision as to where to go for variable rate mortgages. As well as the actual rate itself you may wish to consider what additional charges, if any, might apply when entering into an arrangement and what flexibilities, if any, you are permitted once in it.

For most people a mortgage is a massive commitment and payments constitute a very substantial chunk of one’s income, therefore it is usually prudent to take some time out to think carefully before making the right decision. Compare some of the best variable rate mortgage deals online using the above websites, and find your best variable mortgage rate online today.

 
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