Fixed Rate Mortgages
A fixed rate mortgage locks your interest rate for a set period, typically 2, 3, 5, or sometimes 10 years. Your monthly payment stays the same regardless of what happens to interest rates in the wider economy.
Fixed rate advantages:
- Predictable monthly payments - easier to budget
- Protection if interest rates rise
- Peace of mind knowing exactly what you'll pay
- Good for first-time buyers or those on tight budgets
Fixed rate disadvantages:
- You won't benefit if rates fall
- Usually slightly higher than initial tracker rates
- Early repayment charges if you want to leave early
- Need to remortgage when the fix ends
Tracker Mortgages
A tracker mortgage follows the Bank of England base rate, plus a set margin. If the base rate is 5% and your tracker is base rate + 1%, you pay 6%. If the base rate drops to 4%, your rate drops to 5%.
Tracker advantages:
- You benefit when interest rates fall
- Initial rate often lower than equivalent fixed
- More transparency - you know why your rate changes
- Some trackers have no early repayment charges
Tracker disadvantages:
- Payments increase when base rate rises
- Harder to budget as payments can change
- No protection from rate rises
- Can be stressful watching rate announcements
Which Should You Choose?
There's no universally right answer - it depends on your circumstances and view on future interest rates.
If you're stretching to afford your mortgage or value predictability, a fixed rate is usually safer. If you can absorb some payment variation and think rates might fall, a tracker could save money.