Variable Mortgage Rate
A variable mortgage rate is a home loan with a flexible interest rate adjusted at a level above a specific target. Borrowers can choose a variable rate throughout the mortgage payment period. Lenders can also offer an adjustable mortgage rate, including variable and fixed rates.
Variable rates are designed with a rate margin and indexed rate. When a borrower picks a variable rate, they are assigned a margin during the underwriting process. The variable mortgage rate pays a full indexed rate based on the indexed rate plus margin. A borrower who qualifies to pay the indexed rate is charged with a higher quality variable rate loan. The indexed rates are based on the lender’s prime rate.
Variable Rate Mortgage Basics
The difference between a variable and fixed-rate mortgage is the rates during the loan repayment period. Borrowers get amortized or non-amortized loans that incorporate different variable interest rate structures. Variable mortgage rates are accessible with borrowers who expect the rates to fall with time. When the rates fall, borrowers take advantage of the decreased rates without refinancing, since the interest rates will decrease with the market rates. A variable mortgage rate has variable interest rates, which go up or down, and it usually changes in line with the economy and interest change.
Types of variable rate mortgage
There are three types of variable mortgage rate:
• Standard variable rate (SVR)
Also known as a variable mortgage rate, this refers to the lender’s standard variable rate (SVR). Each lender has a different SVR, and the lender can choose to change the variable-rate at any time.
• Tracker mortgages
This variable mortgage rate tracks the external rate. When the base rate changes, the interest rates on the mortgage also change and alter the monthly payments.
• Discount mortgage rate
A discounted rate that provides a discount on the standard variable rate for a period of time, approximately three years. Although the discount rate mortgage is stable, the repayment can change when the standard variable rate changes.
There is an arrangement fee for every mortgage, some legal fees, and valuation fees to consider. Except for the standard variable rate, which has a low or no fees, there is a small difference in the rate offer.