Fixed vs Variable Rates

Fixed-rate mortgages

With a fixed-rate mortgage, your interest rate — and therefore your monthly payment — stays the same for an agreed period, commonly two, three or five years. This gives certainty and makes budgeting easier, protecting you if rates rise during the deal.

The trade-off is that you will not benefit if rates fall, and fixed deals usually carry an early repayment charge if you leave before the term ends. When the fixed period finishes, you typically move onto the lender’s standard variable rate unless you switch to a new deal.

Variable-rate mortgages

Variable-rate mortgages can change over time. A tracker follows an external rate — usually the Bank of England base rate — plus a set margin, so your payment moves up or down when the base rate changes. A discount deal gives a reduction off the lender’s standard variable rate for a period.

• Tracker — moves directly with the Bank of England base rate by a fixed margin
• Discount — a set amount below the lender’s standard variable rate for a period
• Standard variable rate (SVR) — the lender’s default rate, which it can change largely at its discretion and is often higher

Choosing between them

If certainty matters most and you want to know exactly what you will pay, a fixed rate may suit you. If you can absorb changes in your payments and think rates may fall, a variable rate could cost less — but there is no guarantee. Because this depends heavily on your circumstances, many people take regulated advice before deciding.