With a variable rate mortgage the monthly repayment amount is based on the lender's standard variable rate.

The lender's standard variable rate is based on the Bank of England's base rate and will consequently move up and down as the base rate moves up and down. Standard variable rates vary from lender to lender but are typically 2 to 4 percent above the base rate.

Advantages

• You are able to change mortgage at any time without being penalised as there are no early redemption penalties.



• You can benefit from a fall in the Bank of England's base rate that leads to a subsequent fall in your lender's standard variable rate.

Disadvantages

• The Bank of England base rate can be unpredictable and can increase rapidly, resulting in an increase in your monthly payments.



• It is less easy to budget as the interest rate can and will vary.



• A fall in the base rate will not always result in an equivalent fall in the lender's standard variable rate.