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Variable mortgages

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What is a variable mortgage

A variable mortgage, also known as an adjustable-rate mortgage (ARM), is a type of home loan in which the interest rate is not fixed for the entire duration of the loan.

The key types of variable rates:

With a variable mortgage, interest rates can fluctuate periodically, typically following changes in a specified benchmark, such as the prime rate or the London Interbank Offered Rate (LIBOR).

Variable mortgages usually have an initial fixed-rate period, typically lasting for several years. During this time, the interest rate remains stable and predictable. during which the interest rate remains constant, followed by an adjustable or variable rate period.

Variable mortgages often include interest rate caps, which limit how much the interest rate can increase or decrease during a single adjustment period and over the life of the loan.

The key types of variable rates include:

  • STANDARD VARIABLE RATE: This is the rate that borrowers will be placed on if they don't remortgage following the end of the initial fixed or variable rate.
  • DISCOUNT: These rates are a certain level below the lender's Standard Variable Rate.
  • TRACKER RATES: These follow the Bank of England base rate.
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Who may benefit from a variable mortgage?

Homebuyers in a Low-Interest Rate Environment:

Variable mortgages may be appealing when prevailing fixed mortgage rates are high, and borrowers believe that interest rates are likely to decrease or remain stable in the near future. During the initial fixed-rate period, borrowers can take advantage of a lower initial rate.

Short-Term Homeowners:

If you plan to live in a property for a relatively short period (e.g., 5 years or less) and expect to sell the property before the initial fixed-rate period ends, a variable mortgage may offer lower initial payments and cost savings compared to a fixed-rate mortgage.

Financially Flexible Borrowers:

Individuals who have the financial flexibility to absorb potential increases in monthly mortgage payments due to interest rate adjustments may consider a variable mortgage. This could include those with variable incomes or access to financial reserves.

Investment Property Buyers:

Some real estate investors use variable mortgages for investment properties, as the lower initial interest rates can improve cash flow. They may plan to sell the property or refinance before interest rates rise significantly.
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Making variable mortgages easy for you

Windsor Hill works closely with individuals considering a variable mortgage to help them make an informed decision based on individual needs and circumstances.

Speak to one of our expert team members today to help you with your variable mortgage requirements at 01225 962 456 or email info@windsorhillmortgages.co.uk

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