- >
- Mortgage comparison>
- Guides>
- Should You Get A Fixed, Tracker Or Variable Rate Mortgage?
Should you get a fixed, tracker or variable rate mortgage?
Choosing a mortgage with the right type of interest rate can save you money and make sure you get a deal you can afford. When looking at the difference between a fixed and variable mortgage, think about how long you are committing yourself to the deal. Here are the differences between fixed vs variable mortgages.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
What's a fixed-rate mortgage?
A fixed-rate mortgage means your interest rate is set until an agreed date. This is sometimes called the fixed-term, during which your monthly payments will stay the same, no matter what the Bank of England (BoE) base rate does. The base rate sets the level of interest that banks and building societies charge borrowers.
A fixed-rate mortgage may sound attractive, especially when interest rates are low. But think carefully before committing for too long as some fixed-rate mortgages may have an early repayment charge (ERC). This is a fee you have to pay the lender if you pay in full – say, if you want to remortgage, for example, or if you move house – before the fixed-term is up, and it can be expensive.
Most fixed-rate mortgages allow you to pay more than the usual monthly amount up to a specific limit, (often 10% per year), without any penalty. Great if you get a windfall, but again, watch out for any penalties if you overpay.
At the end of the fixed-rate period, your repayments will switch to the lender's standard variable rate (SVR). This is the long-term rate of interest that the lender will charge and it's usually higher. The good news is you can always take out a new mortgage deal at this point if you don't want to stay on the SVR.
Pros & Cons of a fixed rate mortgage
| Pros | Cons |
|---|---|
| Your monthly payment stays the same over the fixed term, even if interest rates go up | Early repayment charges can be high, making remortgaging or moving home expensive |
| You can plan ahead and budget easily | After the fixed-rate period, you are switched to the lender's SVR. This is usually more expensive than other rates |
| A fixed-rate mortgage can be cheap if you take it out when interest rates are low | If interest rates go down during the fixed-rate period, your payments won't |
What's a variable mortgage?
A variable mortgage is a mortgage where the interest you pay each month can go up and down (usually in line with the base rate). Some months you end up paying more, and others you end up paying less. As such, they make it hard to budget and are regarded as riskier.
Variable-rate mortgages generally come in three forms:
Standard variable rate mortgage
Standard variable rate mortgage
A standard variable rate (SVR) is the standard interest rate charged by your lender. Typically, an SVR is higher than a fixed or tracker rate, so it's a more expensive way to pay back your mortgage. If the SVR goes down, then you pay less each month. But if the SVR goes up, you pay more.
One key difference between fixed and variable mortgages is the risk of rate changes. Although an SVR tends to follow the base rate, the lender can move it up or down when they like. There is little chance of predicting when a lender will change their SVR, and because of this, they are seen as being a bit risky.
Pros & Cons of standard variable rate mortgages
| Pros | Cons |
|---|---|
| If the BoE cuts base rates, your rate may follow it down | They are generally more expensive than other products on the market – you could be paying more than you have to |
| There is often no ERC, so you can pay it back or remortgage at any time | The lender can increase the SVR when it likes, leading to a costly jump in your repayment |
| They tend to have lower arrangement fees than fixed-rate or tracker deals | In a low-interest environment, fixed-rate deals may be better |
Tracker Mortgage
A tracker mortgage is a type of variable mortgage where the interest rate you pay follows the Bank of England (BoE) base rate. Your interest rate is an agreed percentage above the base rate. For example, if the base rate is 0.25* percent and your tracker is set at 1 percent above it, you pay 1.25 percent. If the base rate goes up to 0.50* percent, your tracker rate increases to 1.50 percent.
* for demonstration purposes only - the current UK base rate is 4%
Pros and cons of tracker mortgages
| Pros | Cons |
|---|---|
| Your lender can't increase your interest rate. Only an increase in the BoE base rate can | If the base rate rises, so will your repayments |
| If the base rate falls, so will your repayment | It may cost you to switch before the deal ends |
Discounted Variable Mortgage
A discounted variable mortgage is at a reduced interest rate to the bank or building society's standard variable rate (SVR). The discount is usually for a short period (three years or less), but some lenders may offer longer discounted periods.
Pros and cons of discounted variable mortgages
| Pros | Cons |
|---|---|
| Your rate stays below the SVR as long as the discount lasts | Your discounted rate will increase if base rates rise |
| Your rate will probably go down if the base rate falls | The discount may not be competitive if the lender's SVR is high |
| Lower ERC than fixed-rate mortgages usually, if you want to over pay or remortgage | It is still variable, which makes it hard to budget |
SVRs differ between lenders, so don't assume a bigger discount equals a lower interest rate. Check the lender's SVR as well as the discount being offered.
For example, Bank X offers a 1.5 percent discount to its 5 percent SVR, so you pay 3.5 percent. Bank Y only has a 1 percent discount, but its SVR is 4 percent, you pay 3 percent. Bank X offers a higher discount, but Bank Y is the cheaper option.
Is a fixed or variable mortgage the best choice for you?
In short, there isn’t a single “best” option - the right choice comes down to whether you prefer payment stability (fixed) or potential savings but more risk (variable). Many borrowers compare both types before deciding, and some even consider tracker mortgages as a middle ground.
How to choose:
Pick a fixed mortgage if you value certainty, have a strict budget, or expect rates to rise.
Choose a variable mortgage like tracker mortgages if you can handle fluctuations and want flexibility to overpay or remortgage without high exit fees.
If you're a first time buyer or looking to move house or remortgage, we can help you find the best mortgage deal to suit your needs.
About Salman Haqqi
Salman is our personal finance editor with over 10 years’ experience as a journalist. He has previously written for Finder and regularly provides his expert view on financial and consumer spending issues for local and national press.