On this page
Key takeaways
- Fixed rates give certainty for a set period, but not flexibility
- Tracker rates follow the base rate and may rise or fall
- The SVR is usually more expensive, so avoid drifting onto it
- Choose a deal you could afford if rates rose
- Compare total cost, including fees and ERCs
When you take out or switch a mortgage, one of the biggest choices is the type of interest rate. Do you want certainty about your payments, or are you willing to take a risk that rates could fall, and rise? This guide compares fixed, tracker, discount and standard variable rates, and explains how to choose the one that suits your circumstances.
Fixed-rate mortgages
With a fixed-rate mortgage, the interest rate stays the same for an agreed period, commonly two, three, five or, less often, ten years. Your monthly payment does not change during that time, whatever happens to interest rates elsewhere.
Advantages
- Predictable payments make budgeting easier
- Protection if rates rise
- Peace of mind, especially if your budget is tight
Disadvantages
- You will not benefit if rates fall
- Early repayment charges (ERCs) usually apply if you leave early, often a percentage of the balance
- When the fixed period ends, you normally move to the lender's standard variable rate unless you switch
- Fixed rates sometimes start higher than variable ones, because the lender is pricing in the risk
Tracker mortgages
A tracker mortgage follows a base rate, usually the Bank of England base rate, plus a set margin. If the base rate is 4% and your margin is 1%, you pay 5%. If the base rate changes, your rate changes by the same amount, usually within a month or so.
Advantages
- You benefit quickly when rates fall
- The link to a published rate makes it transparent
- Some trackers have no or low ERCs, giving flexibility
Disadvantages
- Payments can go up when the base rate rises, which can be hard to afford
- Less certainty for budgeting
- Some trackers have a collar, a floor below which the rate will not fall, even if the base rate does
Standard variable rate (SVR)
The SVR is the lender's own default rate. It can move up or down at the lender's discretion, not necessarily following the base rate. You normally move onto it when a deal ends. It is typically higher than the best deals on the market, so most people avoid it by remortgaging or switching. See our guide to how to remortgage.
Discount variable mortgages
These offer a discount on the lender's SVR for a set time, for example SVR minus 1.5% for two years. The rate can still change when the lender changes its SVR, so your payments are not guaranteed. They are less common than they used to be.
Other options
- Offset mortgages: your savings are linked to your mortgage, so you pay interest only on the difference. The rate may be slightly higher, but it can suit people with significant savings.
- Capped rate: a variable rate with a maximum, so it cannot go above a certain level.
- Lifetime trackers: follow a base rate for the whole term.
Comparing the options
| Fixed | Tracker | SVR | |
|---|---|---|---|
| Payment changes during the deal | No | Yes, with base rate | Yes, at lender's choice |
| Benefit if rates fall | No | Yes | Maybe |
| Protection if rates rise | Yes | No | No |
| Typical early repayment charges | Yes | Sometimes | Usually none |
| Good for | Budget certainty | Flexibility and risk tolerance | Short gaps |
How to choose
Ask yourself these questions:
- Could I afford the payment if rates rose by two or three percentage points? Use the "+1%" figure in our mortgage repayment calculator as a starting test. If the answer is no, a fixed rate may be safer.
- Do I have savings to cover higher payments? A good emergency fund gives you room; see how to build an emergency fund.
- Might I move or pay off the mortgage soon? ERCs on fixed deals can be costly, and a tracker with no ERC might be better.
- How long do I want certainty? Two-year fixes give more flexibility, while five-year fixes give longer certainty but may cost more or lock you in.
- What is the total cost? Compare the rate along with the arrangement fee, not only the headline figure.
What is the Bank of England base rate?
The base rate is the rate set by the Bank of England's Monetary Policy Committee, which influences the rates charged by lenders and paid on savings. It is reviewed at regular meetings and may go up, down or stay the same. You can find the current base rate on the Bank of England website. Nobody, including professional economists, can reliably predict where rates will go, so choose a deal you can afford under different scenarios, not one that relies on a guess.
Don't forget fees
A mortgage with a lower rate may have a higher arrangement fee. If you are borrowing a smaller amount, a deal with a higher rate and no fee can work out cheaper. Calculate the cost over the length of the deal. Also check whether the fee is paid upfront or added to the loan, in which case you pay interest on it.
Overpayments and ERCs
Most fixed deals let you overpay a percentage of the balance each year without charge, often 10%. Going above that, or repaying in full, may trigger an ERC. Trackers sometimes allow unlimited overpayments, so check the terms before you decide.
Getting advice
A mortgage adviser or broker authorised by the Financial Conduct Authority can recommend deals based on your circumstances. Ask how they are paid and which lenders they cover. MoneyHelper also offers free guidance. Remember that your home may be repossessed if you do not keep up repayments on your mortgage.
Reviewing your choice
Your circumstances change, so revisit the decision at each renewal. A growing family, a new job, a rise in other costs or a change in your savings can all change how much payment certainty you need. Keep a note of the date your deal ends and start comparing a few months beforehand.
Frequently asked questions
Is a fixed or tracker mortgage cheaper?
Can I leave a fixed deal early?
What happens if the base rate goes up on a tracker?
How long should I fix for?
Sources and further reading
- Mortgage rates explained — MoneyHelper
- Bank Rate — Bank of England
- Consumer help and guidance — Financial Conduct Authority
This page provides general information only. It is not personalised financial, legal or tax advice, and rules and figures can change. Your situation is unique — please check official sources such as GOV.UK and MoneyHelper, and speak to a qualified, FCA-authorised adviser before making important decisions about your money.
Written by
MoneyBrink Editorial Team — Editorial team
The MoneyBrink Editorial Team researches, writes and reviews every guide on this site. We work from official UK sources such as GOV.UK, the Financial Conduct Authority, MoneyHelper and the Money and Pensions Service, explain things in plain English, and update articles when the rules change. We do not sell financial products and we do not give personal advice.
Read how we research and check our guides in our editorial policy.
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