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- Variable Or Fixed Mortgage? Your Definitive Guide
Should I get a fixed or variable rate mortgage?
Deciding whether to choose a variable or fixed mortgage can be tricky. It's important to understand the key features of each type of mortgage and how they work. Our guide looks at variable vs fixed-rate mortgages and how to decide which one is right for your circumstances.
Difference between fixed and variable mortgages
Whilst there are quite a large number of different mortgage products available, there are two main types of interest rate to choose from: fixed-rate mortgages and variable rate mortgages.
Fixed-rate mortgages
Fixed-rate mortgages fix your interest rate for a set period of time. The length of time can vary - two-year and five-year fixed-rate mortgages are most common, though it's possible to fix for up to ten years or possibly longer.
As your interest rate remains the same for the duration of your deal, your monthly mortgage repayments won't change either. This can help you budget as you know how much your payments will be each month.
Variable-rate mortgages
All types of variable rate mortgages can change at any time, including during their initial periods. This means your monthly mortgage repayments could go up or down.
There are three types of variable rate mortgage:
Tracker-rate, which follow an external benchmark - usually the Bank of England base rate
Discount-rate, which offer a discount off the lender's standard variable rate
Standard variable rate (SVR), which is the default interest rate set by the lender
Speak to a broker to find out your options
Work with our broker partner, Mojo Mortgages, to help you find the most suitable mortgage product for your needs. They’ll talk you through the key differences between fixed and variable rate products, and compare deals from across the market.
Fixed vs variable mortgage rates
The table below explains some of the key differences between fixed and variable rate mortgages, dependent on the type of variable rate mortgage you choose.
To see the average current mortgage rates across more product types, please visit our rates page.
| Question | Fixed | Tracker-rate (variable) | SVR (standard variable rate) | Discount-rate (variable) |
|---|---|---|---|---|
| Can the interest payable change during the deal period? | No | Yes | Yes | Yes |
| When could the rates change? | Not during deal period | When the bank of England (BoE) base rate changes - it will follow any changes exactly. E.g if it goes up 1%, so will your mortgage interest rate | Lenders change their SVR at their own discretion. Changes can be for both economic and/ or commercial reasons | This rate is linked to the SVR so will change if and when that does |
| How are the interest rates set? | Lenders set this rate type by estimating how interest rates will change over the deal period | Lenders initially set this at a chosen percentage (usually 1-2%) above the BoE base rate, but it can then only change if the base rate does | Lenders set their own SVR based on a prediction of future market rates, which is why base rate changes won’t necessarily affect it | Lenders set this rate based on a discount of their own SVR rate, so it may be SVR -1.5% for example |
| Are fees payable to leave the deal before the end? | Yes you will usually have to pay early repayment charges (ERCs) to leave a fixed-term deal. These are typically more expensive the longer you have left until the end date | Some, but not all tracker deals tie you in for the initial period, so if you want to leave the deal before the end of that period, you may have ERCs to pay. Check the individual deal | No, you are not tied to an SVR rate and can leave at any time without paying fees | Most discount-rates charge ERCs if you want to leave the deal before the end of the initial period |
| Do they offer the cheapest rates?* | You’ll typically (although not always) pay more for fixed-rates as you’re paying to lock in the certainty that they won’t change | Tracker-rates can be one of the cheaper initial rates available, however, bear in mind that they can change during the initial period | SVR rates are usually the most expensive a lender offers, which is why most people tend to remortgage when they fall onto them | Whilst they are cheaper than the SVR, discount-rates won’t always be as cheap as tracker-rates |
| Main benefits of this type of rate | Certainty - easy to budget, interest cannot rise for the duration of the deal | More certainty than other variable rates as dictated by external factor (BoE base rate) Your rate could fall if the base rate falls | You are not bound to this rate type so can remortgage at any time | It’s cheaper than the SVR |
| Main negatives of this type of rate | You won’t benefit from falls in interest rates and often high exit fees | Will rise if the base rate does - this could be substantial if there is no cap. Collars could mean that you don’t save as much - look out for deals that have them | Unpredictability - lenders can raise this at any time and usually the most expensive type of rate | As this rate is based on the SVR it’s also equally unpredictable |
*Please note: access to the cheapest rates will depend on your individual circumstances and the specific deal offered, no matter what type of deal you opt for.
Compare fixed-rate and variable-rate mortgages
Speak to a qualified mortgage broker to discuss whether a fixed or variable mortgage might be the right choice for you.
Should I choose a variable or fixed-rate mortgage?
Whether a fixed-rate or variable-rate mortgage is right for you will vary depending on your requirements and circumstances. When making this choice, consider the following:
Budgeting & financial predictability. Having the certainty of fixed monthly payments can provide peace of mind as you know exactly how much you need to set aside for your mortgage repayments. With a variable rate, while your payments could decrease if interest rates fall, they could increase if rates rise too. So you'll need to be ready to absorb that extra cost without overstretching yourself.
Risk tolerance. Variable-rate mortgages involve more uncertainty as your interest rates and monthly payments can change. Fixed rates offer protection from rising rates but, if rates decline, you could end up paying more than you would on a variable-rate deal.
Future plans. Fixed-rate mortgages often come with early repayment charges (ERCs) if you want to pay off your mortgage or switch deals before the fixed term ends. Variable-rate mortgages often have lower or no ERCs, offering more flexibility if you plan to move, want to make significant overpayments or plan to remortgage sooner.
Interest rate expectations. While no one can predict the future, you may wish to consider what current rates are available and whether you believe rates are likely to rise, fall or stay relatively stable in the future.
Is a fixed or variable rate best for a first-time buyer?
Most first-time buyers tend to opt for a fixed-rate mortgage. This is largely because buying a home is a huge step and having set payments, at least for an initial period of time, can help people to adjust to the ongoing responsibility of a mortgage payment.
That said, it's certainly possible to take out a variable-rate mortgage as a first-time buyer, so long as you (and the lender) feel confident that there is enough flexibility within your budget to deal with potential interest rate rises.
Speaking to a broker is a great way to put your mind at ease, as their expertise can help you make a more informed decision.
Choosing between a fixed or variable mortgage really comes down to your own personal preference. Do you prefer the steady predictability of fixed payments, or are you comfortable with the ups and downs of a variable rate? Speaking with a broker can help you weigh up your options.”Laura Hamilton, Mortgage Expert
Fixed or variable rate mortgage FAQs
Should I remortgage from a variable rate to a fixed-rate?
If you’re on a standard variable rate, it’s likely to be cheaper to remortgage onto a fixed-rate mortgage in most circumstances, as you won’t have any ERCs to pay. Either way, a fixed-rate mortgage will offer you more certainty vs a variable rate mortgage, as the interest rate cannot increase over the fixed-rate period.
Switching from a tracker or discount variable rate to a fixed-rate will also offer additional certainty, but will need a bit more investigation with regard to costs. tracker-rates are likely to be cheaper than fixed-rates, but they could become more expensive at any time. If there are ERCs to leave your current tracker or discount deal, this could also make remortgaging more expensive.
Should I remortgage from a fixed-rate to a variable rate?
If you have some cash to play with once you’ve paid all of your household bills, or you’re looking for a bit more flexibility, then variable rates could be the right option for you.
You will need to consider which type of variable rate is most suited to your needs, and weigh up the pros and cons of each before deciding which option is right for you.
It’s also important to check any fees that you would be liable for if you are planning to remortgage before the end of your current deal.
What are mortgage collars and caps?
Collars and caps are usually found on tracker mortgages, and while you will benefit from a cap, you should be cautious of rates that have a collar.
Mortgage collars set a minimum of how low the rate on your mortgage will go, regardless of what happens to the indicator it’s following.
For example, a tracker mortgage set at 2% points above the BoE base rate, but with a 1% collar means that even if the base rate fell to zero, you would pay 3% (1% instead of zero + the lender’s 2% above that rate).
Collars should always be displayed clearly and if there is no information about them in the Key Facts document that comes with your mortgage, you can complain to the Financial Ombudsman. The Financial Conduct Authority states that its omission may make the policy invalid.
A cap, on the other hand, is very rare, but if you’re lucky enough to find one, it acts in the opposite way to a collar. So a cap will effectively guarantee that while your rate can rise, it will never rise beyond a designated percentage.
Do trackers always follow the Bank of England (BoE) base rate?
Most do, but it does depend what type of mortgage you have. For example, commercial mortgages, such as buy-to-let mortgages, tend to follow SONIA (Sterling Overnight Index Average).
If you use a sub-prime lender (sometimes known as a bad credit lender) your rate may also be based on SONIA. This is still controlled by the Bank of England, but is a more transaction based rate.
YOUR HOME/PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
The FCA does not regulate mortgages on commercial or investment buy-to-let properties.
Uswitch makes introductions to Mojo Mortgages to provide mortgage solutions.
Uswitch and Mojo Mortgages are part of the same group of companies. Uswitch Limited is authorised and regulated by the Financial Conduct Authority (FCA) under firm reference number 312850. You can check this on the Financial Services Register by visiting the FCA website.
Uswitch Limited is registered in England and Wales (Company No 03612689) The Cooperage, 5 Copper Row, London SE1 2LH.
Mojo Mortgages is a trading style of Life's Great Limited which is registered in England and Wales (06246376). Mojo are authorised and regulated by the Financial Conduct Authority and are on the Financial Services Register (478215)
Mojo’s registered office is The Cooperage, 5 Copper Row, London, SE1 2LH. To contact Mojo by phone, please call 0333 123 0012.