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Why you should never pay a standard variable rate*


(*Unless you have a poor credit history and even then you shouldn't pay one for more than a few years)

The standard variable rate, or SVR, is the basic interest rate on which a mortgage lender bases all its mortgage deals.

These average about two percentage points above the Bank of England's base lending rate.

So if the Bank's base lending rate is 5.5 per cent, most mainstream mortgage lenders SVRs will be around 7.5 per cent.

But, provided you have a reasonable credit history, you should never actually pay this rate.

This is because lenders also offer a range of far cheaper
fixed interest and discounted variable rate deals.

These can last anything from six months to the full
mortgage term, which is traditionally 25 years.

However the most popular deals tend to last between two and five years.

Why standard variable rates are a waste of money

Imagine you wanted a100,000
repayment mortgages

If a lender offered you a standard variable rate of 7.5 per cent, assuming this didn't change, over five years the repayments would total44,339.

But you would be crazy to accept, because that same lender might also have several far cheaper fixed and discount deals.

If, instead, you took a five-year fix at 5.5 per cent, the repayments would be36,844 saving you a massive7,495!

Don't get tied into a standard variable rate

When you're shopping around for a good value fixed-rate or discount deal, always check the
early redemption penalty.

Avoid deals with an
extended redemption penalty, which ties you into paying the lender's standard variable rate beyond the fixed or discounted period as this could more than cancel out the savings you make.

For more on early redemption penalties, read
Early redemption penalty explained and How to avoid paying an early redemption penalty.

 

Want even more detailed description of what a Variable Rate Mortgage is?

 

To read more on this subject please see the list below or your mortgage guide or your home buying guide

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Read On About

Fixed Rate

Variable Rate

Capped Rate

Discounted Rate

Fix and Track Mortgages

 

 

Read On

Types of UK Mortgages

Repayment mortgages

Interest only mortgages

Interest repayment arrangements

Complete A-Z of mortgages

Read On / Mortgage Guide

Mortgage Basics

Choosing a Mortgage

Different Mortgage Types

Re Mortgages

How to Find your Mortgage

Mortgages in Principle

Costs of UK Mortgages

Mortgage TOP TIPS

Mortgage Calculators

A to Z all UK Mortgage Types

 

Read On

Guide to Buying Home in the UK

Guide to UK Home and Mortgage Insurance

Life Insurance Guide

Glossary of UK Mortgage Terms

Mortgage News

 



 

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