Fixed rate mortgages explained
Quick summary: With a fixed rate mortgage, you can borrow at the same interest rate for a set period. Because rate is fixed, you’ll pay the same amount each month. This is different from a variable rate mortgage, where your rate can change. Fixed rates usually end after two or five years.
A fixed rate mortgage could be right for you if you want to be certain how much your mortgage will cost each month. Fixed rates do not change — so your payments should stay the same while the fixed rate period lasts. Most fixed rate mortgages run for two or five years before the fixed term ends. After this, you’ll be put on the lender’s standard variable rate (SVR), which is usually higher.
This guide explains how fixed rate mortgages work, as well as their pros and cons. You’ll get a better idea of whether a fixed rate mortgage is right for you, and tips for finding the best one.
What is a fixed rate mortgage?
A fixed rate mortgage is a type of mortgage with an interest rate that does not change for a set period. Interest is what you pay to borrow, usually each month. It’s worked out as a percentage of the amount you owe — this percentage is called the mortgage interest rate. Because a fixed rate does not change, your payments should be the same each month. This can make budgeting a little easier. Fixed rate mortgages are often popular with first-time buyers and others who need more certainty about money.
Fixed rate mortgages often start with a two-year or five-year fixed rate. Some may offer a 10-year fixed rate or longer, though these are less common. If you don’t remortgage, you’ll be put on your lender’s SVR when your fixed term ends. But you don’t have to stay there — you could switch to a new fixed rate mortgage.
How does a fixed rate mortgage work?
- A fixed rate stays the same. Even if market rates change, your fixed rate will not budge. This usually means you’ll pay the same amount each month. Costs other than interest could go up though, like ground rent or buildings insurance.
- Shorter or longer terms can have lower rates. 5-year and 10-year fixed mortgages often have higher rates than a 2-year fixed mortgage. This is because the lender takes a bigger risk that rates go up while they cannot charge you more. But this is not always the case. It depends on current mortgage rate trends – shorter or longer fixes can be cheaper at different times. Look at the interest rates available and compare current deals rather than assuming one term has the lowest rate.
- You get the SVR when your fixed rate ends. Your lender’s standard variable rate (SVR) will often cost more than what you paid on your fixed rate mortgage, and more than discounted variable rates and tracker rates.
- There’s an early repayment charge (ERC). This is a penalty fee for switching or overpaying your mortgage before the fixed rate ends. Some lenders let you overpay 10% a year without charge. The ERC is usually worked out as 1% to 5% of the amount you still owe. It may be worth it if you save more than the ERC by switching to a better deal or paying off the mortgage faster.
- You can queue up your next mortgage. If you want to switch when your fixed rate ends and don’t want to go onto your lender’s SVR, you can give yourself a head start. Start comparing mortgages at least six months before. It’s possible to lock in a new mortgage up to six months before payments start.
What are the pros and cons of fixed rate mortgages?
A fixed rate mortgage may give you more certainty, as your interest rate cannot go up (or down) while the fixed rate lasts. But there’s less flexibility than with a variable mortgage — you may pay a penalty charge if you close or overpay your mortgage during the fixed term.
| Pros | Cons |
|---|---|
| Knowing how much you’ll pay every month can give you peace of mind. | Fixed rates can be higher than the best variable rates. |
| It can be easier to budget as your mortgage payments will not change on a fixed rate. | If rates go down in the mortgage market, you may miss out on a better deal. |
| You’re protected against interest rate rises that may affect variable rate mortgages. | If you switch to another mortgage before your fixed rate ends, there’s usually an early repayment charge. |
Fixed vs variable mortgage
What’s the difference between fixed rate and variable rate mortgages? One big difference is that fixed rates stay the same while variable rates can go up or down. This affects what you pay — it’s the same amount each month on a fixed rate mortgage but could change on a variable mortgage.
Also, fixed rate mortgage deals tend to be less flexible. If you want to overpay or switch your mortgage before the fixed rate ends, you’ll usually pay an early repayment charge (ERC). ERCs are much less common on variable mortgages — good news if you want to change to a fixed rate mortgage or a better deal.
So, which has lower rates, variable or fixed mortgages? It can depend on the variable rate type:
- Standard variable rate (SVR) is a lender’s basic rate and usually a lot higher.
- Discounted rates are a set percentage below the SVR. They may start lower than a fixed rate, but the lender can put them up. They often end after a few years.
- Tracker rates are a percentage above an independently set rate, like the Bank of England base rate. Not sure whether to choose a tracker or fixed mortgage? A fixed rate offers more certainty, but a tracker rate could be lower if the base rate drops.
How to get the best fixed mortgage offers?
Taking care of your credit score, saving a larger deposit, and choosing monthly payments that fit your budget may open the door to some of the cheapest fixed home loan rates. Lenders may save their best fixed mortgage offers for people with a 40% deposit. But even growing your deposit by 5% can help.
Shop around for the best fixed rate mortgage deals. It doesn’t have to be hard work — just tell us what you’re after and we’ll show you top offers from over 100 lenders all in one place. Comparing mortgages with Experian is free and will not affect your credit score. Just remember, we’re a credit broker, not a lender.
We’re a credit broker, not a lender.
How Experian can help you get a fixed rate mortgage
We can help you find the right mortgage and improve your chances of approval. Check your free Experian Credit Score before you apply. A higher score means you’re more likely to get the fixed rate mortgage you want. Learn how to improve your score and view your free Experian Credit Report to see what’s affecting it.
It’s not only your credit history lenders look at. Things like your income and bank statements are another chance to impress them. Try to show you have a steady income and lots of room in your monthly budget for the mortgage payments.
How to compare fixed rate mortgages
Low rates are attractive but not the whole story. Look at more than just the advertised rate when you compare fixed rate mortgages.
- Mortgage type. Some types of mortgages may be better suited to certain buyers, like home movers, first-time buyers, landlords, people in later life or those with poor credit. There are also different options for how you pay, like interest-only mortgages.
- When the rate ends. A two-year fixed rate mortgage may have a lower rate, but market rates could be higher when it ends. A five-year fixed mortgage would protect you from rate rises for longer, but there’s a chance you’ll miss better deals. There’s no way to know for sure, so it often comes down to which risks you can accept.
- Payments and total cost. Compare fixed home loan rates, terms and amounts to see how they affect your monthly mortgage payments and the overall cost.
Ready to compare real offers? Search mortgages with Experian. You can see top offers from over 100 trusted lenders. Fill in a few details and let us do the rest. Just remember, we’re a credit broker, not a lender
Frequently asked questions
What to do when a fixed rate mortgage ends?
Plan for when your fixed rate ends so you’re not stuck paying your lender’s costly SVR. One option may be to switch to a better deal, like a new fixed rate mortgage. If you can afford it, another option may be to pay off your mortgage in full. There’s no penalty fee for switching or overpaying after your fixed rate ends.
Can I change my fixed mortgage rate?
Yes, you may be able to switch to a new fixed rate with either your current lender or a new one. But there’s an early repayment charge (ERC) for switching before your fixed rate ends. Work out if changing your mortgage will save you enough money to make the ERC worth it.
How long should I get a fixed rate mortgage for?
It depends. Longer fixed rate mortgages often have slightly higher rates than shorter ones, but they protect you from rate rises for longer. You’re also locked in for longer — so if you might move, switch your mortgage or overpay it in the next few years, a two-year fixed rate may suit you better.
Is a fixed rate mortgage better?
It really depends on your situation, the mortgage market and what you’re comparing to. If a low rate is important to you, a fixed rate mortgage is better than the lender’s SVR, but often not as good as the best discounted rates. If you want your interest rate to follow the Bank of England base rate, a tracker mortgage may suit you. If you want predictable payments more than flexibility, a fixed rate mortgage is usually better.