Pros and cons of variable rate mortgages
A lender's SVR is usually not the most competitive interest rate it has to offer. But these days the most competitive rates tend only to be available to borrowers with a very large deposit or a lot of equity in their property. therefore the SVR can be an attractive rate for borrowers who do not have a large deposit or lots of equity.
Cash-back mortgages
Some offer cash-back mortgages, where you pay the SVR and are handed a cash lump sum on completion of the mortgage. Cash-back mortgages can be useful for those people who need cash upfront, but are rarely competitive over the longer term.
Discounted variable rate mortgages
Almost all mortgage lenders offer discounts off their SVR, which can be attractive.
A discounted variable rate mortgage works in a similar way to a tracker mortgage, but with a tracker the rate you pay is linked directly to the Bank Rate, rather than the lender's chosen standard variable rate.
Get off the SVR
Whenever you take out a mortgage, it is important that you get the best deal possible, whether that is a discounted variable rate mortgage, fixed, capped or tracker deal.
When you get to the end of a mortgage deal, you should see whether you can transfer to another deal. If you do not, you will automatically be transferred to the lender's SVR. If you do not have a large amount of equity in your property, this may turn out to be the best rate available to you.
Your lender will inform you three months before you come to then end of your deal, giving you plenty of time to shop around for another. This is known as remortgaging.
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