When it comes to selecting a mortgage, it can be a little on the confusing side, particularly if you’re a first-time buyer, or its been a long time since you bought a property. Among the mortgage rate jargon you’ll come across are Standard Rate Variable (SVR) rates and Variable mortgage rates.
But exactly what is the difference between these two types of mortgage and which would work better for you?
Read on to find out more about them and whether either is a good plan for your next property purchase.
Standard Variable Rate
A standard variable rate mortgage, or (SVR), is the one your lender will typically put your mortgage repayment level on, once a fixed rate or set period discounted rate, comes to an end.
Your lender’s SVR mortgage tends to move in line with the Bank of England’s base interest rate, but it isn’t tied to it. So, while your SVR may rise or fall when the central bank raises or lowers its rate, that change isn’t guaranteed.
A variable rate mortgage actually refers to a group of mortgage product types. While SVR mortgages can come under the Variable Rate umbrella, there are other variable rate options:
- Discount mortgages
- Tracker mortgages.
- Capped rate mortgages.
A discount mortgage is where your mortgage repayment rate is discounted from the lender’s SVR, usually for a set period of two or three years.
The discounted mortgage will still move in line with your lender’s SVR, but it will remain a certain amount below that rate, 1.5% or 2%.
Be careful when considering a discounted rate, however. Even if one lender is offering a larger discount, if its SVR rate is higher than another lender offering a smaller percentage discount, the rate you actually pay, could still be higher than for the other option.
A tracker mortgage is where your mortgage rate moves exactly in line with the BOE base interest rate. If the central bank raises rates by 0.5%, then your mortgage interest rate will rise by the same amount – the same is true if the BOE cuts its interest rate.
A capped rate mortgage product means that although your mortgage rate can fluctuate in line with BOE rates, there is an upper limit as to where it will remain, should rates rise higher than you expected.
But that upper limit can be quite high, so be certain you what it is and will still be comfortable making repayments at that level.
SVR vs other Variable rates mortgages
As you can see, there’s quite a lot of choice when it comes to your mortgage and that’s not even considering the fixed rate options out there!
Your SVR rate is rarely the cheapest option out there. And, even though it often moves in line with any BOE rate changes, it doesn’t have to.
However, as well as typically having a lower arrangement fee, you can also opt into any other deal at any time without paying a penalty fee.
The other variable rates have their pros and cons. While the interest rate you’re charged by those mortgages will change, there are some additional details in place to sweeten the deal a little.
You will likely be charged an exit fee if you switch out of those other variable rate options and the arrangement fees will also likely be a little more than for an SVR.
Only you can make the decision as to which would work best for you provided your well-informed and understand what your choosing between and what your options are.
If you feel your lender hasn’t told you everything they should, or even mis-informed or mis-sold a product to you, get in touch with us at Mis-Sold Mortgage Experts.