Choose a mortgage and you face an early fork in the road: a fixed rate or a variable one that tracks the wider market. Both are sensible options, but they suit different temperaments and circumstances. The decision shapes your monthly payment for years, so it deserves more than a coin toss.
How a fixed rate works
A fixed-rate mortgage locks your interest rate for a set period, commonly two, three or five years. Your monthly payment stays the same throughout, whatever happens to the wider market. That certainty is the appeal: you can budget to the penny and sleep soundly when rates rise. The trade-off is that you gain nothing if rates fall.
How a tracker works
A tracker follows a benchmark rate, usually the Bank of England base rate, plus a fixed margin. When the base rate falls, your payment falls with it; when it rises, so does your bill. Trackers can be cheaper when rates are dropping, but they expose you to increases you cannot control.
- Fixed certainty and easy budgeting, no benefit if rates drop
- Tracker potential savings, but payments can climb
- Early repayment charges common on fixed deals, check the terms
Matching the deal to your life
If your budget is tight and a sudden rise would hurt, a fix buys peace of mind. If you have room to absorb fluctuations and expect rates to ease, a tracker might save money. Consider, too, how long you plan to stay, since early repayment charges can bite if you move before a fixed term ends.
No perfect crystal ball
Nobody can reliably predict where rates will go, so do not agonise over timing the market. Pick the option whose risks you can live with, rather than the one that might, with luck, prove cheapest. A mortgage you can comfortably afford in good times and bad is the right one.