Fixed rate vs variable rate mortgages

What is the most suitable for you?

Helping you make an informed decision about which type of interest rate meets your needs.

Fixed Rate Mortgages

A fixed rate mortgage is a mortgage deal offered by lenders, where the interest rate remains the same throughout the deal term. For example, a 5-year fixed rate will have a constant interest rate for the entire 5-year duration. Fixed rates are attractive to borrowers who are risk averse, as the monthly payments on the mortgage remain the same, and it is easier to budget long-term for your mortgage payment.

Tracker Rate Mortgages

A tracker rate mortgage rises and falls according to the Bank of England base rate. A common misconception is that the interest rate is the same as the base rate, but this is untrue. Most lenders will charge a certain percentage above the Bank of England base rate, this could be 0.5%. 

For a time at the beginning of the year, many borrowers opted to take tracker rate mortgages, as the headline interest rate was lower than the fixed rates available. Tracker rate mortgages are ideal for less risk averse borrowers, who hope the base rate will come down in the future and their mortgage payments will also fall. 

Variable Rate Mortgages

Variable rate mortgages are rarely offered. If you have a bad credit history or are looking for a specialised mortgage product, you may find the variable rate is the only option available to you. When your mortgage deal ends, if you fail to remortgage onto a new deal, your mortgage will default to the lender’s Standard Variable Rate. Variable rates are subject to change, and a lender can increase or decrease them at their own discretion.

Choosing the right option for you

The type of product deal you choose depends on your appetite for risk. When you discuss your financial situation with a mortgage broker, they will present a range of options and highlight the risks involved with each product. Fixed rate mortgages tend to represent lower risk, but they are not risk free. For example, you may take a high interest fixed rate at a time when the Bank of England reduces the base rate, making tracker rates the cheapest interest rate on the market. It is important to speak to a mortgage specialist who will match the right product deal for your personal situation.


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