What’s the difference between fixed and variable rates?

Fixed rate mortgages, as the name suggests, offer a set rate over a given term. This protects the borrower from interest rate rises during that time. The rates tend to be higher than those on the leading variable deals because you are paying for the peace of mind over the term.

Fixed rates are typically for two, three, five or occasionally ten years. Once the fixed period ends, borrowers are moved on to the lender’s Standard Variable Rate (SVR), which can be higher. Variable mortgage rates can vary during the mortgage term, meaning borrowers do not have the security of knowing how much their repayments will be every month. There are two types of variable rate mortgages: trackers and discounts.

• Tracker mortgages follow the base rate by a certain margin. They tend to be cheaper than fixed rate deals as the mortgage lender is not offering any guarantee that your rate won’t rise over the term of deal.
• Discount mortgages work differently. They are linked to the lender’s own Standard Variable Rate by a given percentage below, instead of the base rate. SVRs are priced independently by lenders – HSBC’s is 3.94% for example, while Santander’s is 4.24%. Each bank and building society can change its SVR whenever it chooses. This means that your mortgage rate, and therefore monthly repayment, could rise even if base rate doesn’t.

Finding out more information about which rates are available at the moment couldn’t be simpler, just contact me on 01425 291066 to arrange an initial consultation.

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