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Mortgage
Guide
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Types
Of Mortgage
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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
Read On
Interest
only mortgages
Interest repayment
arrangements
Read On / Mortgage Guide
Choosing
a Mortgage
Different Mortgage Types
Re
Mortgages
How to Find your Mortgage
Mortgages in Principle
Read On
Guide to Buying Home in the UK
Guide to UK Home and Mortgage Insurance
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