Fixed Rate, Tracker, or Variable? Understanding Your Mortgage Options
Choosing the right type of mortgage is just as important as finding the right rate. With several options available, it can feel unclear which is best suited to your circumstances. Whether you are a first-time buyer, moving home, or considering a remortgage, understanding how each mortgage type works is a solid starting point. At Akers Pritchett, we help clients across Nottingham, Derby, and Leicester weigh up these options every day.
Fixed Rate Mortgages
A fixed rate mortgage locks your interest rate in for a set period, most commonly two, three, or five years, though ten-year fixes are also available. Your monthly repayments stay exactly the same throughout that period, regardless of what happens to interest rates elsewhere.
This predictability makes fixed rate mortgages particularly popular with homeowners who want certainty over their monthly outgoings. If you are stretching your budget to buy a home, knowing your payment will not change for several years can provide real peace of mind.
The trade-off is flexibility. If you need to leave your mortgage early during the fixed period, your lender will typically charge an early repayment charge, which can be significant. It is also worth bearing in mind that if interest rates fall during your fixed term, you will not automatically benefit.
Tracker Mortgages
A tracker mortgage follows an external rate, most commonly the Bank of England base rate, plus a set percentage on top. If the base rate changes, your monthly payment changes with it.
Tracker mortgages can work well when rates are expected to fall or remain stable, as you benefit directly from any reductions. However, they carry more risk than a fixed rate deal because your payments can also increase if rates rise. Some tracker products include a collar, which is a floor below which your rate will not drop, so it is always worth checking the full terms.
Standard Variable Rate (SVR)
When a fixed or tracker deal comes to an end, borrowers who do not remortgage will typically move onto their lender’s Standard Variable Rate. The SVR is set by the lender itself rather than tracking an external benchmark, and it can change at the lender’s discretion. SVRs are generally higher than the rates available on new mortgage deals, which is why reviewing your mortgage before your current deal ends is so important.
Discount Mortgages
A discount mortgage offers a set reduction on the lender’s SVR for a defined period. Because it is linked to the SVR rather than the base rate, the rate you pay can still change even during the discount period if the lender decides to move their SVR. This makes discount mortgages slightly less predictable than tracker deals.
Which Type Is Right for You?
The right mortgage type depends on your circumstances, your attitude to risk, and your plans for the property. Someone who values certainty and is on a tight monthly budget will likely favour a fixed rate. Someone who expects rates to fall and has the flexibility to absorb payment changes might consider a tracker.
Our mortgage advisors will talk through your situation, explain the implications of each option in plain English, and recommend the product that suits you best. Get in touch today for a free, no-obligation conversation.
Frequently Asked Questions
Should I fix for two years or five years?
This depends on your circumstances and how much certainty you want. A shorter fix gives you more flexibility sooner, which suits people who might move or remortgage within a few years. A longer fix provides more payment stability, which can be valuable if you want to budget confidently over the longer term. Our advisors will help you weigh up which term makes the most sense for your situation.
What happens when my fixed rate ends?
When your fixed rate period concludes, you will automatically move onto your lender’s Standard Variable Rate unless you take action beforehand. The SVR is typically less competitive than the rates available on new deals, which is why we recommend starting your remortgage search three to six months before your current deal ends. Our team will compare the full market to find the right product for your next term.
Can I switch mortgage type when I remortgage?
Yes, absolutely. Remortgaging is a natural opportunity to reassess not just your rate but the type of mortgage product that suits your current situation. You might move from a tracker to a fixed rate for greater stability, or vice versa. Our advisors will review your circumstances and present all the options available to you at that point.
Your home may be repossessed if you do not keep up repayments on your mortgage.
You may have to pay an early repayment charge to your existing lender if you remortgage.