Know the 3 Different Types of Variable Rate?

Limetree Financial Services Limited

Know the 3 Different Types of Variable Rate?

Most people know what a variable rate mortgage is. It is a mortgage where the interest rate on the loan is regularly adjusted by the lender. It may go up or down, based on whatever the rate is linked to, or at the lender’s discretion.

The knock on effect is that your monthly payments may fluctuate. People arrange variable rate mortgages in the hope of benefitting from lower rates, although the rates can of course go up as well as down.

But most people are only aware of one type of variable rate, when in fact there are three.

Tracker mortgages are guaranteed to follow the Bank of England Base Rate. When the base rate changes, the tracker interest rate changes by the same amount.

Discount variable rate mortgages have an interest rate where a discount is applied to the lender’s standard variable rate (SVR) for a set period. It moves up and down to the same degree as the SVR. A lender’s SVR is influenced by the movement of the Bank of England base rate, but not exactly. Mortgage lenders use their own discretion to set the rate.

Libor mortgages track the London Inter-Bank Offered Rate. This is the rate at which banks lend money to each other in the money markets. Most Libor mortgages have a three-monthly rate review but are not a liable to change as the other two.

If you have decided to go for a variable rate mortgage, you still need to choose between the different types. We are happy to advise you to find the product that suits your needs the best. There is no charge for talking to us – simply get in touch.

Related Post