What is a variable rate mortgage?

As opposed to a fixed-rate mortgage, a variable rate mortgage is where the interest rate keeps fluctuating over time. Here, your monthly mortgage repayments are not fixed and keep changing as the interest rate of your lender keeps changing.
With variable mortgages your monthly payment can go down if the interest rates go down, you may end up paying more interest over time if the rates go up. Applicant should be prepared for both scenarios if thinking of variable rate mortgage deal.

Variable-rate has a following mortgage category.
Standard Variable Rate (SVR)
This is the most common type of variable rate where the interest is set by the lender and can be changed at any time during the tenure of the mortgage. In most cases, the decision of increasing or decreasing the interest rate is affected by a change in the base rate of the Bank of England.
SVR mortgages are suitable for borrowers who are financially secure and have financial cushioning if the interest rates go too high. However, a major benefit of such mortgages is that the borrowers are not charged for overpaying or closing the deal early.
Capped Rate Mortgage
Capped rate mortgages are similar to SVR mortgages but provide an added benefit to the borrower. While the fluctuations in the rate of interest are in line with their SVR mortgage, there is a pre-decided limit for the increase in the interest rates. If you get yourself a capped rate mortgage, you can rest assured that the interest rates will not go above a specific percentage.
However, as they are more secure as compared to SVC mortgages, capped rate mortgages often have higher interest rates than SVC mortgages.
Discount Rate Mortgage
In the case of a discount rate mortgage, the lender offers you a discount on their standard variable rate for a specific period of time. This reduces the monthly interest to be paid by the borrowers for some time. However, when the discount period ends, the interest rate goes back to the SVR and the payments are likely to increase. Essentially, this is an offer provided by lenders to new borrowers to engage with them.
However, it is important to note that a greater discount doesn’t always mean that the monthly repayments would be cheaper. As the discount is applied to the SVR and the SVRs between different lenders are different, it is important to calculate the actual amount of interest to be paid instead of the discount offered while choosing the best deal.
Tracker Mortgage
This is the type of mortgage that is linked to another mortgage and its interest rate changes with the rate that it is tracking. For example, if the tracked base rate of the mortgage increases by 2%, your mortgage rate will also increase by 2%. In most cases, the tracked rate is the base rate of the Bank of England with a few additional percentages.
The term of tracker mortgages is usually between 2 to 5 years, although some lenders use tracked rates throughout the duration of their mortgages. The major benefit of a tracker mortgage is that its interest rate is determined by a tracker rate instead of the lender. However, you may need to pay an early repayment charge if you want to close the deal before your agreement ends.

Fixed-rate Mortgage Vs Variable Rate Mortgage
The mortgage that is better for you depends on your individual needs and preferences. If you are willing to play safe and do not want to stand the risk of paying more interest over time, you can get a fixed-rate mortgage. On the other hand, if you are prepared to pay more interest if the rates increase but want to avail yourself of the benefits when the rates dip or want to have options to pay off mortgage early without any penalty then, you can go for variable-rate mortgages. Irrespective of the type of mortgage you choose, make sure you with a skilled mortgage broker who would scan the whole market and bring you deals that best suit your requirements and circumstances.