What’s the difference between fixed rates and variable rate mortgages?

Fixed Rate Mortgages

A fixed rate is where your mortgage interest rate is guaranteed to stay the same for a set period of time. It’s one of the most popular interest rates across the mortgage market because people like to know what their payments are going to be every month.

When you take out a mortgage, you typically have an introductory rate that would last for a set period of time. This fixed rate can be between two and fifteen years. When the fixed rate period ends, you’re usually moved onto the lender’s standard variable rate, which is the default rate.

The lender’s variable rate is known as SVR or standard variable rate. A variable rate will go up and down as the market fluctuates, and the lender has control over that rate. Most lenders will keep interest rates in line with the Bank of England base rate.

As standard variable rates are normally a lot higher than fixed interest rates, most people will choose to remortgage when they are moved onto the lenders SVR.

Variable Rate Mortgages

Some lenders give you the option of taking the standard variable rate from the beginning of your mortgage. This is not very common and there are only a few specialist lenders that offer that option.

Tracker Rate Mortgages

A tracker rate mortgage has a variable rate, so it has the possibility of fluctuating up or down. The difference between a tracker rate and a standard variable rate is that the tracker rate specifically tracks the Bank of England’s base rate. This means that the lender has no control over rate changes.

The interest rate for a tracker mortgage is usually the UK base rate, plus a certain percentage. If the base rate was to decrease, your rate would go down and if it was to increase, your rate would go up. It’s often more flexible than a fixed rate mortgage, in that it doesn’t usually have early repayment or penalty charges, should you choose to pay your mortgage off early.