When you take out a variable rate mortgage, your mortgage rate will go up and down depending on variables such as the UK economy. Interest rates are usually cut when the economy is suffering and increased when the economy is strong. Variable rate mortgages have three categories; tracker mortgages, standard variable rates and discounts.
In this type of variable rate mortgage, the interest rate moves in line with one particular economic indicator. Usually these payments work on a Base Rate +% basis. If the base rate that your mortgage is tracking increases, your payments will also increase. If the base rate drops, so will your payments.
Standard Variable Rate Mortgages
A standard variable rate mortgage has a variable interest rate that vaguely follows the Bank of England’s movements. Usually, borrowers who start on an interest-only or fixed-rate mortgage will end up on a standard variable rate mortgage once their initial fixed period has ended.
Discount Rate Mortgages
A discount rate mortgage offers a discount on the standard variable rate. Discounts usually only last for a few years, but there are exceptions to this. It is wise to ensure you have all the information you need about this type of mortgage, as terms can be unclear, and you may end up paying a lot more once the initial discount period has ended.