Standard Variable Rate Mortgage
Here is the first mortgage term you should understand called Standard Variable Rate, or SVR. This is the typical interest rate that you will be paying on the total amount you are borrowing. It is usually expressed as a percentage, and differs from an APR (Annual Percentage Rate). An APR includes all costs associated with the Finance, such as interest, fees, and any compulsory insurances etc.
While interest rates often vary quite widely across the white board, all lenders will have a Standard Variable Rate. It's the default rate for their mortgages, and can provide a good indication of whether they are offering good deals. Comparing different lenders' Standard Variable Rates is just one way to get an idea of who has lower rates generally, though there will be exceptions to this rule.
This rate fluctuates, going up or down according to the economy and the lender. The biggest factor that effects Standard Variable Rates is the Base Rate set by the Bank of England. In recent years this has been kept relatively low, and mortgage interest rates have been particularly good for borrowers. However, this could change and you should bear in mind that rates could go up in the future.
Many mortgages start off with special introductory rates, and then revert to the Standard Variable Rate Mortgage after a certain period. These include capped and collared mortgages. There are also fixed rate and interest only mortgages available, which are covered in more detail on other pages. When considering mortgages with special introductory rates, you should also take into account what the Standard Variable Rate is likely to be once your initial period is over. Many mortgages come with the condition that you stick with the same one for several years, even when the special offer period is over. There will often be penalties if you want to change mortgage within this tied period.
Interest calculation and interest charging
Be aware that there is a difference between interest calculation and interest charging. Some mortgages calculate interest on a daily basis, which works out as fairer for the borrower as your overall balance is reducing every month, and therefore the interest will be reducing too. Other lenders calculate interest monthly or annually, although annual calculation should be avoided if at all possible, as you will be paying the same interest for a whole year despite your balance having been reduced by your repayments. You should also ensure that your interest is charge in arrears, rather than in advance.
If you refinanced your old mortgage or purchased your home with an Variable Rate Mortgage, you might wonder what will happen once the introductory period of your Finance ends. Many homeowners that financed their homes with these risky variable interest rate mortgages are in for a shock when the mortgage lender adjusts the interest rate and monthly payment. If you are one of these homeowners, here is what you need to know to protect yourself from a mortgage payment crisis.
Most common types of mortgage include
- Variable rate mortgage
- Fixed rate mortgage
- Tracker rate mortgage
The bottom line is that you may not be able to afford the payments once your Finance is converted. If you are coming up on the end of your introductory period and do not know what your monthly payment will be, you should contact your lender immediately and ask about the change. If you do not qualify to refinance the mortgage and will not be able to afford the payments, you may need to take on a second job or consider selling your home.
If you are enquiring about a standard variable rate mortgage then fill out our call back application form below and we will call you to start the ball rolling.
