Should I Fix My Mortgage?

Whether you’re a first-time buyer or looking to remortgage, knowing whether to fix your mortgage is key to getting a good deal.

One of the benefits of a fixed-rate mortgage is that it offers stability. However, if interest rates fall, you can be stuck paying more in repayments than you otherwise would if you were on a variable rate.

In this article, we’ll examine the pros and cons of fixing your mortgage, how long you should consider fixing it, and the alternatives to a fixed-rate mortgage.

What is a fixed-rate mortgage?

A fixed-rate mortgage is an arrangement where you lock in the same interest rate on your mortgage for a set period. This differs from a tracker mortgage, for example, where the interest rate tracks changes in the Bank of England base rate.

The main advantage of fixed rates is that you have stable monthly repayments. However, this can be a downside if interest rates fall and you’re stuck with a higher rate. Below are some pros and cons of fixed-rate mortgages to consider.

Benefits of a fixed-rate mortgage

• Predictability: Household budgeting becomes easier as your repayments remain unchanged throughout your term.
• Not affected by rate increases: If interest rates rise, you’re not affected as your rate is locked in. This can save you a lot of money if rates increase by a lot in a short space of time.
• Simplicity: Fixed-rate mortgages are easy to understand, which is helpful if you’re a first-time buyer and want a straightforward mortgage.
• Long-term planning: The stability of knowing you have an interest rate locked in allows you to plan for the future without worrying about fluctuating rates.
• Peace of mind: You can feel secure knowing that your payments will remain the same throughout your term.

Downsides of a fixed-rate mortgage

• Less flexibility: Most lenders will cap how you can overpay on a fixed-rate mortgage, typically 10% of your debt. So, you could face charges if you want to pay off your mortgage early.
• Missed opportunities: If interest rates fall, you’re stuck with a higher rate for your term. You won’t benefit from reduced rates and could pay more than necessary.
• Charges: If you make overpayments that exceed the limit your lender allows or you exit the mortgage early, you could face early repayment charges, which can be expensive.
• Renegotiation risks: If interest rates have increased, you may face higher rates when you’re renegotiating or remortgaging at the end of your term.

How long should I fix my mortgage for?

There’s no correct answer to this question, which will depend on your circumstances and financial situation.

Here are a few things you should consider to help you come to the best decision:

• What are my property and financial goals? Fixing your mortgage can be beneficial if you plan on staying in your current home for a long time. You won’t need to worry about porting your mortgage to another property, and it provides stability for your financial situation.
• Do I want to lock in my rate for the short-term or long-term? If you think interest rates may reduce in the near future, a two-year fixed rate is a good idea, as you can remortgage when rates may be lower. With a five-year fixed rate, you’re locked in for longer, which can be beneficial if rates increase, but you’ll be stuck with a higher rate until you can remortgage if they decrease.
• Do I want stable monthly expenses? If you’re in a financial situation where you need stability, knowing the exact amount you’re going to repay each month on your mortgage is beneficial. Getting a longer term in this scenario might be a good idea.
• What is the current interest rate environment? The interest rate is one of the most significant factors in what you repay each month. If rates are low when you’re applying for a mortgage, locking that rate in for the long term can be a smart move.

Is it better to fix my mortgage for longer?

The benefit of fixing your mortgage for longer is that it offers you certainty. You know what your repayments will be for a set period, such as 5 or 10 years.

One downside of fixing your mortgage for longer is that you’re stuck with that rate if interest rates fall. In times of low interest rates, this isn’t a big issue, but after the Bank of England raised interest rates 14 times in a row from 2021 to 2023, you could be stuck with a high rate if they lower rates in the future.

While you can remortgage at a lower rate, this will likely involve paying early repayment charges, which can be costly.

Should I fix my mortgage for 2, 3, 5, or 10 years?

Whether you decide to fix your mortgage rate for 2, 3, 5, or even 10 years depends on many of the factors mentioned above, as well as your circumstances and financial position.

5-year fixed rates offer certainty and peace of mind. You know what your repayments will be every month, and you can budget accordingly. This protects you against any potential interest rate rises, and you might be able to borrow more if you opt for a longer fixed rate.

However, given that the economic outlook can change, you could end up stuck with a high fixed rate when interest rates are lowered. This is where two —or three-year fixed rates are beneficial.

You get stability benefits with your monthly repayments, but you have more flexibility if interest rates are lowered. This might be a good option if you believe rates will be lowered soon to avoid being stuck with a higher rate.

The downside is that extra fees are involved, which you can spread over 5 or 10 years.

Should I get a fixed or variable-rate mortgage?

If you’re unsure whether a fixed-rate mortgage is the right decision, a variable-rate mortgage is another option. In this type of mortgage, the interest rate changes depending on whether rates rise or fall.

Below are a few pointers to help you consider whether a fixed-rate or variable mortgage is the right choice for you:

Types of variable rate mortgages

There are three main types of variable-rate mortgages:

• Tracker mortgage: A tracker mortgage tracks the Bank of England base rate. When the rate rises, so does your mortgage; when it lowers, your mortgage follows suit. It’s important to note that a tracker mortgage will always remain a specified percentage point above the base rate.
• Discount mortgage: A discount mortgage signs you up to the lender’s standard variable rate (SVR), but you’re charged a set percentage discount for an agreed period. So if the SVR is 5%, your discounted rate could be 3.5%
• Standard variable rate: The standard variable rate is the lender’s default rate, which is what you will be transferred to if you do nothing once your current deal ends. It’s almost always higher than any of their other offers.

Benefits of variable-rate mortgages

• Rates might decrease: With a variable-rate mortgage, rates can decrease, which means your monthly repayments could decrease and save you money.
• Flexibility: Variable-rate mortgages often come with fewer restrictions on overpayments, which means you can pay off your mortgage faster without incurring penalties.
• No early repayment charges: Most variable-rate mortgages don’t have early repayment charges, giving you greater freedom to change deals without extra costs.
• Beneficial during low-interest rate periods: If rates are low, you can take advantage of this without locking into a fixed-rate mortgage.

Downsides of variable-rate mortgages

• Higher initial rates: You often get higher initial rates with a variable-rate mortgage compared to a fixed-rate mortgage.
• Uncertainty with payments: If interest rates increase, so will your monthly repayments, which means you could end up paying more than if you were on a fixed rate.
• Risk of high payments: If rates rise above 5%, 6%, or even higher, you can end up in a situation where you’re paying a lot more each month than you otherwise would be.
• It can be harder to budget: As you don’t know for certain what your monthly repayments will be, it can be harder to plan finances for the long term.
• Market vulnerability: A variable-rate mortgage exposes you to economic conditions, which can cause your mortgage costs to fluctuate due to factors beyond your control.
• Stress and anxiety: Uncertainty about your monthly repayments can cause stress and anxiety. This is especially true if interest rates are high and you have a tight budget.

How a mortgage broker can help

If you’re unsure whether a fixed-rate or variable-rate mortgage is the best option for you, speaking to a mortgage broker can help you decide on the best product, given your circumstances.

They’ll weigh up all elements of your financial situation and determine whether a fixed-rate or variable-rate mortgage is best and which lender offers the best terms for you, too. Additionally, they can make your entire application process smoother and help ensure you are approved the first time.

Our free, no-obligation broker matching service will connect you with the best advisor for your needs. Call us on 0330 818 7026 or enquire with us today so we can connect you with a specialist.