The Risks of Reverting to the Lender's Variable Rate After Your Initial Benefit Period

Reverting to a UK lender's variable rate after the initial benefit period of a mortgage can have a significant impact on your monthly payments. In this blog post, we will discuss what the variable rate is, how it is calculated, and what effect it can have on your finances.

The variable rate is the interest rate that a lender charges on a mortgage. This rate can change over time and is typically tied to the Bank of England's base rate. When you initially take out a mortgage, you may be offered a fixed rate or a discounted rate for a certain period, such as two or five years. Once this period is over, you will usually revert to the lender's variable rate.

The variable rate can be calculated in different ways, depending on the lender. Some lenders use a standard variable rate (SVR), which is set by the lender and can be changed at any time. Other lenders use a tracker rate, which tracks the Bank of England's base rate and is adjusted accordingly.

Reverting to the variable rate can have a significant impact on your monthly payments. If the lender's variable rate is higher than the rate you were previously paying, your monthly payments will increase. This can put a strain on your finances, especially if you have other bills or expenses to pay.

However, it is important to note that reverting to the variable rate can also work in your favour. If the lender's variable rate is lower than the rate you were previously paying, your monthly payments will decrease. This can provide some relief to your finances and may even give you some extra money to put towards other expenses.

To avoid any surprises, it is important to check with your lender when your initial benefit period is coming to an end and what the new monthly payments will be if you revert to the variable rate. You may want to consider remortgaging to a fixed rate or discounted rate if you are concerned about the impact of the variable rate on your finances.

In conclusion, reverting to the UK lender's variable rate after the initial benefit period of a mortgage can have a significant impact on your monthly payments. It is important to understand how the variable rate is calculated and to be aware of any changes to your monthly payments. By doing so, you can make informed decisions about your finances and ensure that you are not caught off guard by any unexpected increases in your mortgage payments.