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Fixed or Variable Rate Mortgage: Which is Best?

Should I go for a fixed or variable rate mortgage? Find the right advice here.

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Pete Mugleston

Author: Pete Mugleston - Mortgage Advisor, MD

Updated: June 27, 2022

If you’re shopping for a mortgage, the first step is to research options and decide which mortgage product would be best for your situation.

The two main mortgage types available are fixed-rate mortgages and adjustable (or variable) rate mortgages, though you may be wondering what the pros and cons are of each one.

So with two different options on the market and lots of factors, how can you be certain on your mortgage choice? And what process should you go through to work out which type is best for you?

Read on for the answers to these questions and more.

It’s always a good idea to seek out information from an expert before committing to a large financial decision, especially when it comes to your mortgage rate.

Call us on 0808 189 2301 or make an enquiry to be put in touch with a top-quality financial advisor.

What is a fixed-rate mortgage?

A fixed-rate mortgage can provide you with the security of knowing exactly how much you’ll be paying each month as it allows you to fix the rate of interest you pay back on your mortgage for a set period of time, typically between two to five years, although a handful of lenders offer terms of seven or even ten years.

Generally, the longer your fixed-rate mortgage term, the higher the mortgage interest rate. This is because it’s harder for mortgage providers to predict the markets over the long-term, so the higher interest covers any risk.

What is a variable-rate mortgage?

Variable-rate mortgages are where your interest rate can be changed at any point entirely at the discretion of the lender.

If you take out a variable-rate mortgage, you’ll need to be comfortable with having some changes to your monthly repayments, though you could end up saving money if the rate falls. You can take out a variable-rate mortgage for the duration of your mortgage repayment term.

Is a tracker mortgage the same as a variable-rate mortgage?

Not exactly. This type of mortgage works in a very similar way to a variable-rate mortgage, however, tracker mortgages are linked to a specific index, the Bank of England’s base rate, for example.

While you could save money with a tracker mortgage if the linked index falls, there’s also a chance that it could rise. Because of this, if you are interested in a tracker mortgage, you may want to consider borrowing from a lender who won’t charge you penalty fees if you want to leave early and switch to a better rate mortgage.

For more information, make an enquiry and we’ll put you in touch with an expert.

Why do variable-rate mortgages fluctuate?

Variable-rate mortgages have interest that fluctuates according to wider economic and financial market. It’s important you understand the direction the financial market, economy, and interest rates are going and how this could impact your variable-rate mortgage repayments.

This is why getting an adjustable-rate mortgage and understanding its pros and cons can be more complicated than taking out a fixed mortgage. It’s best to seek out the help of an expert mortgage broker who understands the details and can take directly to your ideal mortgage type, but also your best deal.

What determines changes in variable-rate mortgages?

Interest rates will be adjusted according to a specific reference rate or benchmark, such as the London Interbank Offered Rate (LIBOR) or the Bank of England base rate. The LIBOR is the benchmark interest rate which major banks use for lending between each other.

The LIBOR is also used as an indicator of the overall level of trust in the financial system, and shows the confidence banks have in each other’s financial health.

The Bank of England base rate is reviewed roughly every 6 weeks and is generally used by the government to manage borrowing costs in line with inflation. Most tracker mortgages are directly linked to this rate.

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What is an adjustable-rate mortgage?

A common type of variable mortgage is an adjustable-rate mortgage. It offers the borrower both a fixed and a variable rate that resets periodically.

These loans are often structured to charge a fixed interest rate in the initial few years of the loan, and this is followed by a variable interest rate for the remaining duration of the loan.

However, the specific length of term for the fixed and variable-rate mortgage will vary according to the provider and product offer. Deciding on the most suitable length of term for a fixed or variable-rate mortgage can be complex and will depend on your financial details.

That’s why most experts recommend you speak to a whole-of-market mortgage broker before making any major decisions about which mortgage to take out. Make an enquiry to speak with an expert.

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

Here are some of the main differing features which can help you compare fixed versus variable mortgages:

  • Fixed-rate mortgages offer a set monthly repayment, but the rates are often nominally higher.
  • Variable-rate mortgages offer an interest rate that changes according to market conditions and economic factors, so you have to be able to afford changes to regular payments.
  • Variable-rate mortgages can be taken out for the duration of your mortgage term.
  • Fixed-rate mortgages can be taken out for a fixed period.
  • An adjustable-rate mortgage is a common type of mortgage which combines a fixed mortgage term followed by a variable mortgage term.

Fixed versus variable: which mortgage type costs more?

Mortgage interest rates are always an important deciding factor when it comes to choosing mortgage type. Fixed-rate mortgages provide security in knowing exactly how much you will have to pay every month but they are often more expensive than the variable rate mortgage.

However, market conditions are always in flux and fixed rate mortgage lenders have been competing to bring their best offers to market. So, if you feel getting a fixed rate mortgage is right for your situation, don’t dismiss it due to the potential cost until you’ve spoken with an expert.

With the help of an expert mortgage broker, you may even find a fixed-rate mortgage that costs you less than the variable mortgage. If you’d like help in deciding whether to take out a fixed-rate or variable-rate mortgage and securing the best deal, make an enquiry with us.

Should I get a fixed or variable mortgage?

Would a fixed-rate or variable-rate mortgage deal be right for you? As with all major financial decisions, there is no one size fits all answer, what’s better for you will depend on your situation.

However, there are some circumstances in which a fixed mortgage would make more sense: if you can’t budget for changes or increases to your mortgage rate, or if you expect Bank of England interest rates to rise. Though bear in mind that if the rates drop, you may not get the best deals on a fixed-rate mortgage.

Conversely, if interest rates are declining and you can afford potential changes or increases to your repayments, a variable-rate mortgage may be a viable option.

The mortgage buyer who is knowledgeable about economic forecasting and ahead of the crowds will get the best deals. That’s why it’s best to get professional advice from a mortgage advisor. Make an enquiry to get started.

Is the best mortgage option fixed or variable?

So, is it better to get a fixed or a variable mortgage? It completely depends on your circumstances. The right answer will take a combination of the personal details of your finances, preferences, and market conditions into account.

For example, interest may rise and fall according to the economy. Whether you prefer more or less risk may depend on your profession: if you are looking for a self-employed mortgage or more prone to having a varied income you may prefer the certainty of a fixed-rate mortgage.

Here are a few factors which could help gauge whether a fixed term or variable-rate mortgage is best for you:

  • How much is your income likely to vary over the years?
  • How much can you afford to pay back in monthly repayments right now?
  • If interest rates were to rise, could you still comfortably afford an adjustable-rate mortgage?
  • Are interest rates currently heading up or down?
  • What are the current interest rate trends and do you expect them to continue?

Of course, these are just a few of the questions you should ask yourself when considering whether to get a fixed or variable-rate mortgage. There are other factors to take into account, such as whether you are the sole breadwinner in a family, or have savings or other financial assets.

Fixed, tracker, or variable-rate mortgage?

A variable-rate mortgage is based on the provider’s standard variable rate, whereas a tracker mortgage will normally follow the Bank of England’s Base rate.

This is the rate the Bank of England charges other banks and lenders when they borrow money; it determines the interest rate that many providers charge for mortgages and other loans. A lower Bank of England base rate is good for borrowers of tracker mortgages as it means less interest on your mortgage loan.

Like all variable rate mortgages, interest rates on a tracker mortgage are likely to go up or down in line with the economy. However, it can be easier to monitor interest rates and forecast trends. This is because interest rates are based on Bank of England rates.

Because of this, trackers are often popular in times of low or falling interest rates. When your fixed rate or tracker mortgage ends, most lenders will move you onto a variable-rate mortgage. Whichever mortgage you may prefer, speaking to an expert mortgage broker will help you find your best mortgage. Make an enquiry today to get started.

How often do variable mortgage interest rates change?

The Bank of England meets roughly every 6 weeks to review the base rate and decide what to do with it. The decision is based on the strength of the UK economy and the rate of borrowing and this will impact your tracker mortgage payments.

There are no set rules as to when or how much a mortgage provider can change the standard variable rate. They will often change the rate in reaction to changes to Bank of England rates, or the LIBOR.

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Standard variable rate or fixed mortgage?

Here are some of the pros and cons to standard variable rate versus fixed rate mortgages.

Flexibility of repayments:

  • Standard variable-rate mortgages often don’t have an early repayment charge. This makes it easier to quickly pay back your mortgage, or switch to another provider or mortgage type.
  • Fixed-rate mortgages often have a fee for leaving or repaying early. You are tied into the deal for a fixed period of time.

Management of monthly expenses:

  • Monthly standard variable-rate mortgage repayments can change, so you need to make sure you can afford to pay back your repayments if rates rise to the lender’s ‘ceiling’.
  • The fixed-rate mortgage gives you certainty over the management of your monthly expenses.

Should I use a mortgage calculator?

While there’s no specific calculator to directly compare fixed and variable rate mortgages, our mortgage repayment calculator could help you to see how much your monthly payments could vary.

However, when calculating mortgage rates, remember that your monthly payments could be affected by an interest rate change. That’s why when it comes to choosing between a fixed-rate and variable-rate mortgage, most calculator tools are fairly limited.

For more precise results and advice on what fits best with your overall vision and finances, speak to an expert mortgage broker.

Speak to an expert advisor today

If you’d like more advice on whether a fixed or variable rate mortgage is better for you and you want to secure the best rates possible, get in touch. Give us a call on 0808 189 2301 or make an enquiry online.

We don’t charge a fee for connecting you to the right expert, there’s no mark against your credit and no obligation to make a purchase.

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About the author

Pete, an expert in all things mortgages, cut his teeth right in the middle of the credit crunch. With plenty of people needing help and few mortgage providers lending, Pete found great success in going the extra mile to find mortgages for people whom many others considered lost causes. The experience he gained, coupled with his love of helping people reach their goals, led him to establish Online Mortgage Advisor, with one clear vision – to help as many customers as possible get the right advice, regardless of need or background.

Pete’s presence in the industry as the ‘go-to’ for specialist finance continues to grow, and he is regularly cited in and writes for both local and national press, as well as trade publications, with a regular column in Mortgage Introducer and being the exclusive mortgage expert for LOVEMoney. Pete also writes for OMA of course!

Read more about Pete

Pete Mugleston

Mortgage Advisor, MD

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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