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The Benefits of Having an Adjustable Rate Mortgage

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What is an Adjustable Rate Mortgage?An Adjustable Rate Mortgage or the lender’s Standard Variable Rate is the most basic form of mortgage that is usually available to a borrower seeking to purchase a house.They are currently very popular!According to a recent report, 8 million of the UK’s 12 million mortgage holders are now on their bank’s variable rate. Suddenly, the adjustable or standard rate mortgage has gone from a product that you moved off quickly to a popular type of mortgage that people are willing to hang around on. But why?Well first of all because it is a “no frills” mortgage product it has lots of benefits. With special offers such as fixed rates, discounted mortgages, tracker mortgages and the likes there is the potential that if interest rates rise that the mortgage holder will be left saving a lot of money. To protect themselves from this the lender has to impose various criteria. And these criteria do not usually exist on the adjustable rate mortgage.The benefit of flexibilityOne of these is flexibility. For all of the offer types of mortgages there can be lock ins and penalties, whereas if you are on the lender’s most basic variable rate product usually you are free to come and go as you please. If you want to change mortgage or even lender tomorrow then you can do, without incurring extra fees. So an advantage is this flexibility.The benefit of lower monthly costsAnother advantage is cost, at least in the immediate future. Again because the lender is not offering to lock you into some discount for the next 5 years (or whatever), they do not have a discount to try to recoup. Therefore, the SVR, or adjustable rate mortgage, is quite often cheaper to begin with than offers.The third benefitNormally the third benefit of these mortgages is that if interest rates drop then your monthly payments should also drop in line with base rates. However, with rates at an all time low there is only one way for them to move and when rates increase, so do your payments.Traditionally, Adjustable Rate Mortgages were seen as the mortgage that you must get away from as quickly as possible. However, with base interest rates at their all time low and the lenders following these base rates, suddenly they have become very popular. They offer a good mixture of freedom, to swap and change if you want to and a low initial price, but at the cost that when base rates start to climb you will then be paying more.

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