Choosing between a fixed-rate and tracker mortgage is an important decision. Neither option is universally better. The right choice depends on your circumstances, household budget, future plans and how comfortable you are with changes to your monthly payment.
This guide explains how fixed-rate and tracker mortgages work, the main benefits and trade-offs, and the questions to consider before making a decision.
The short answer
A fixed rate provides payment certainty for an agreed period. A tracker rate moves in line with an external rate, usually Bank Rate. The most suitable option is the one that provides an appropriate balance of certainty, flexibility, affordability and risk for your circumstances.
At a glance
Fixed rate
Provides payment certainty for an agreed period.
Tracker rate
Moves in line with an external rate, usually Bank Rate.
Your circumstances
Determine how much payment uncertainty and product flexibility may be appropriate.
Important
A mortgage should not be selected only because it has the lowest initial rate. Consider the payment, fees, early repayment charges, flexibility and overall cost over the period that matters to you.
Understanding fixed-rate mortgages
A fixed-rate mortgage has an interest rate that remains unchanged for an agreed period. During that period, the contractual mortgage payment will normally remain unchanged, provided there are no other changes to the mortgage.
Changes in Bank Rate do not directly alter the contractual payment during the fixed period.
Potential advantages
- Greater certainty over monthly payments.
- Protection from interest-rate increases during the fixed period.
- Easier household budgeting.
- May suit borrowers who would find a payment increase difficult to absorb.
Points to consider
- Early repayment charges commonly apply during the fixed period.
- You will not normally benefit automatically if market rates fall.
- Moving home, changing the mortgage or repaying early may result in charges.
- Portability does not guarantee that the existing mortgage can be transferred. A new application, affordability assessment and property review may still be required.
- At the end of the fixed period, the mortgage will move to the rate stated in the offer unless a new arrangement is made.
Understanding tracker mortgages
A tracker mortgage is a variable-rate mortgage that follows a specified external rate. In the UK, this is commonly Bank Rate, plus or minus a stated margin.
For example, a product described as Bank Rate plus 0.75 percentage points would move when Bank Rate changes, subject to the mortgage terms and the timing of the lender’s adjustment.
Some trackers include a minimum rate, sometimes called a collar or floor. This may limit how far the mortgage rate can fall.
Potential advantages
- The mortgage rate may reduce when the tracked rate falls.
- Some products offer lower or no early repayment charges.
- Greater flexibility may be available in some circumstances.
- Certain products may allow a move to a fixed rate without an early repayment charge, subject to the lender’s terms and the products available at that time.
Points to consider
- The mortgage rate and monthly payment can increase.
- Household budgeting is less predictable.
- The starting rate does not show what the mortgage will cost if the tracked rate changes.
- Product terms, collars, fees and early repayment charges vary.
Fixed rate and tracker compared
| Consideration | Fixed rate | Tracker rate |
|---|---|---|
| Monthly payment | Normally unchanged during the fixed period. | Can rise or fall when the tracked rate changes. |
| Protection from rate rises | Yes, during the fixed period. | No. Increases normally pass through under the product terms. |
| Benefit from rate reductions | The contractual rate normally remains fixed. | The rate may reduce when the tracked rate falls, subject to any collar or floor. |
| Budgeting certainty | Higher. | Lower. |
| Early repayment charges | Common during the fixed period. | May be lower or absent, but this varies. |
| Flexibility | Can be more restricted. | Can be greater on some products. |
| Main risk | Paying an early repayment charge or remaining on the fixed rate if wider rates fall. | Higher payments if the tracked rate rises. |
The decision is about more than predicting rates
Future interest-rate movements cannot be known with certainty. A product should therefore be judged by how it would affect your finances under different outcomes, not only by what you expect rates to do next.
Ask:
- What would happen to the household budget if the payment increased?
- How much certainty is needed for other financial commitments?
- Is flexibility important because you may move, overpay or repay early?
- How long are you likely to keep this mortgage?
- Are any changes to income, employment, family circumstances or expenditure expected?
- Would a variable payment cause concern even if it remained affordable?
- Is the difference in overall cost worth the level of certainty or flexibility provided?
A useful principle
If a payment increase would create financial pressure, the certainty of a fixed rate may be particularly important. If your budget has sufficient capacity and flexibility is a priority, a tracker may be worth considering. Personal advice is needed before deciding.
Look beyond the headline rate
Compare the complete product rather than the initial rate alone.
Rate and payment
Consider the initial payment and how it could change. With a tracker, ask for illustrations showing the effect of possible increases. With a fixed rate, consider what may happen when the fixed period ends.
Product fees
A lower rate may come with a higher product fee. The lowest rate is not always the lowest-cost option, particularly for a smaller mortgage or a product held for a shorter period.
Early repayment charges
Check the amount, duration and events that may trigger a charge. These can matter if you expect to move home, remortgage, make a large overpayment or repay the mortgage early.
Overpayments and flexibility
Review the permitted overpayment allowance, minimum overpayment, underpayment rules and whether previous overpayments create any future flexibility.
Incentives and associated costs
Cashback, a free valuation or assisted legal work may reduce upfront costs, but should be considered as part of the whole package.
Follow-on rate
Understand the rate that applies after the initial product period and arrange a review before the deal ends.
Other mortgage rates worth understanding
Discount mortgage
A discount mortgage provides a stated discount from a lender-managed variable rate, commonly its standard variable rate. Because the lender controls the underlying rate in accordance with the mortgage terms, the payment may change even when Bank Rate does not.
Standard variable rate
A standard variable rate is set by the lender and can change under the mortgage terms. A mortgage may move to this rate when an initial deal ends. It should not be assumed to be the most expensive or least suitable option in every case, but it is sensible to review the available alternatives before an existing deal expires.
Offset mortgage
An offset mortgage links eligible savings to the mortgage. The linked savings reduce the balance on which interest is calculated rather than normally earning interest themselves. Product rates, access to savings and tax circumstances should all be considered.
Can borrowing be split?
Some lenders may allow different parts of a mortgage to use different products, such as part fixed and part tracker. This can spread interest-rate exposure, but it also adds complexity.
Consider:
- Whether both parts have different end dates.
- Whether separate early repayment charges apply.
- How easy it may be to remortgage both parts together later.
- Whether the lender permits the proposed structure.
- Whether the added complexity provides a meaningful benefit.
A split arrangement is not automatically a safer or more suitable compromise.
If you already have a mortgage application in progress
Once a product has been selected, the options for changing it vary by lender and stage of the application.
Before changing or cancelling a product:
- Check whether a replacement product is available to you.
- Compare the rate, fees, incentives and early repayment charges.
- Consider whether the change could affect underwriting, valuation or the expected completion date.
- Do not allow an existing offer or reserved product to lapse without understanding the consequences.
- Ask your adviser to confirm the available options and overall cost.
Preparing for a product review
Have the following information available:
- Current mortgage balance and repayment method.
- Current rate, payment and deal end date.
- Early repayment charge and the date it ends.
- Remaining mortgage term.
- Updated property value and estimated loan-to-value.
- Income, expenditure and credit commitments.
- Expected changes to employment, family circumstances or household costs.
- Plans to move, overpay, borrow more or repay early.
- Your preferred balance between certainty and flexibility.
MMPE’s approach
At My Mortgage & Protection Experts, we do not base a recommendation on a prediction of future interest rates.
We will:
- Understand your objectives, budget and future plans.
- Assess affordability and your capacity to manage payment changes.
- Discuss your preferences for certainty and flexibility.
- Research suitable products from the market available to us.
- Compare the rate, fees, incentives, restrictions and overall cost.
- Explain the recommendation, risks and alternatives clearly.
- Support the application through to completion.
The most suitable mortgage is not necessarily the product with the lowest rate today. It should fit your circumstances, remain affordable and provide an appropriate balance of cost, certainty and flexibility.
Glossary
| Term | Plain-English meaning |
|---|---|
| Fixed rate | A mortgage interest rate that remains unchanged for an agreed period. |
| Tracker rate | A variable mortgage rate that follows a specified external rate, commonly Bank Rate. |
| Bank Rate | The interest rate set by the Bank of England’s Monetary Policy Committee. |
| Product period | The period for which the initial fixed, tracker or discount arrangement applies. |
| Standard variable rate | A lender-managed variable rate that may apply when an initial mortgage deal ends. |
| Discount mortgage | A variable mortgage priced at a stated discount from a lender-managed rate. |
| Offset mortgage | A mortgage linked to eligible savings, which reduce the balance on which interest is calculated. |
| Early repayment charge | A charge that may apply if a mortgage is repaid or changed during a specified period. |
| Collar or floor | A minimum rate below which a variable mortgage rate will not fall under the product terms. |
| Portability | A feature that may allow a mortgage product to be transferred to another property, subject to a new application and lender approval. |
Important information
This guide provides general educational information only and does not constitute personal mortgage, legal or tax advice. Mortgage products, rates, lender criteria and product features can change. A recommendation can only be made after a full assessment of your circumstances.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
My Mortgage & Protection Experts Ltd is an Appointed Representative of King Mortgages Ltd, which is authorised and regulated by the Financial Conduct Authority. My Mortgage & Protection Experts Ltd: FCA reference 937076. King Mortgages Ltd: FCA reference 803561.
This guide is for informational purposes only and was accurate at the date of publication. Please seek personalised advice before making financial decisions.
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