Fixed vs Tracker Mortgages Explained

A fixed rate mortgage keeps your interest rate the same for an agreed initial period. Your monthly payment on that part of the deal stays the same, whatever happens to interest rates elsewhere.

Potential benefits:

• Predictable payments, which can make budgeting easier.
• Protection if interest rates rise during the fixed period.

Potential downsides:

• You will not benefit if interest rates fall during the fixed period.
• Leaving the deal early usually means an early repayment charge (a fee for repaying or switching before the deal ends).
• Fixed rates may come with arrangement fees or other costs, which vary between products.

When the fixed period ends, most borrowers move to the lender's standard variable rate unless they choose a new deal. That rate can change at the lender's discretion and is often higher than a new deal would be, so many borrowers review their options before the end date.

A tracker mortgage follows another rate, most commonly the Bank of England's Bank Rate. Your rate is usually Bank Rate plus a set margin (an agreed amount added on top). When Bank Rate moves, your rate and monthly payment usually move with it.

Potential benefits:

• Your payments may fall if Bank Rate falls.
• The way the rate moves is easy to follow, because it is linked to a published rate.
• Some trackers have lower or no early repayment charges, but this varies by product.

Potential downsides:

• Your payments may rise if Bank Rate rises, sometimes soon after the change.
• Your monthly cost is harder to predict.
• Some trackers have a floor (a minimum rate), so your rate may not fall below a certain level even if Bank Rate does.

Tracker terms differ, so read the product details carefully.

The main difference is who carries the risk of rate changes during the deal.

• Fixed rate: certainty about payments, but less flexibility and possible early repayment charges.
• Tracker: payments can go down or up, so you need to be comfortable with that uncertainty.

Some borrowers choose a fixed rate because they want stable payments. Others choose a tracker because they are prepared for their payments to change, or want more flexibility to leave the deal. Neither suits everyone.

Your income stability, how much spare money you have each month, your plans for the property and how you feel about risk all affect which type may suit you.

1. Speak to a mortgage adviser. An adviser looks at your income, deposit and goals, and explains the types of mortgage available along with the costs and risks. They help you understand your options and what a lender will ask for. You can request a callback to be introduced to a mortgage adviser.
2. Set your budget. Work out what you can afford each month. Then test what would happen if your payments rose. This matters most for a tracker, but it is worth doing for a fixed rate too, as you will need a new deal when the fixed period ends.
3. Compare current deals. Look at the rates page for the latest figures and their dates. Use the tools on this site to estimate payments.
4. Check the full cost and exit terms. Look beyond the headline rate to fees, early repayment charges, any floor on a tracker and what happens when the deal ends.
5. Make your full application. Gather your documents and complete the forms carefully. An adviser can help you prepare the application and documents.

If you already have a mortgage and your deal is ending, see the remortgage guide. For wider background, see the mortgages overview.

Your home may be repossessed if you do not keep up repayments on your mortgage.

This article is general information only and is not personal advice. Your circumstances, the lender you choose and the product you take will affect what is right for you, so speak to a qualified mortgage adviser before making a decision.

mortgageadviceuk.com is an independent marketing website which acts solely as an introducer to companies who provide mortgage advice. Request a callback to be introduced to an adviser.