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Fixed rate mortgages offer a fixed interest rate for a set period of time, usually between one and five years. Even if interest rates go up, you’ll still have the same monthly repayments. The caveat is you will usually trade security and peace of mind for a slightly higher interest rate compared to tracker and discount rate mortgages.

What is a fixed rate mortgage?

A fixed rate mortgage means that your monthly repayments will stay the same during the fixed rate period, which is usually between one and five years.

With other types of mortgage, the interest rate – and thus your monthly repayments – could go up or down, depending on the lender’s standard variable rate (SVR) or the Bank of England base rate.

Other types of mortgage and their interest rates

  • Variable mortgages are based on the bank or building society’s standard variable rate (SVR), which usually follows the Bank of England’s base interest rate.
  • Tracker mortgages are explicitly linked to the Bank of England base rate. So a tracker mortgage might have an interest rate of 2%, plus the BoE base rate of 0.5%, for a total of 2.5%. If the base rate goes up by another 0.5% your mortgage’s interest rate would then be 3%, and your monthly repayments would increase accordingly.
  • Discount mortgages are based on a lender’s standard variable rate, but with a discounted initial period. For example, you might get a discount mortgage interest rate of 2% for two years – then it would revert to the bank’s SVR of 5%.
  • Capped mortgages can be any of the above, but they have an upper cap on your monthly repayments, providing security in a similar way to fixed-rate mortgages. One intriguing aspect of capped mortgages is that if interest rates go down, your monthly repayments can go down too.

Is fixed rate the best type of mortgage?

The main advantage of fixed-rate mortgages is that you can be sure that your monthly repayments will stay the same until the end of the fixed-rate period. If the Bank of England base rate goes up, your interest rate stays the same, potentially ‘saving’ you thousands of pounds.

The trade-off is that fixed mortgages tend to offer slightly higher interest rates than tracker and discounted mortgages. In essence you are paying for the extra security that a fixed-rate mortgage provides. Also, if the BoE base rate falls during your fixed-rate term, you could ‘lose’ a lot of money versus the tracker and discounted mortgages.

It’s also important to note that most fixed-rate mortgages will penalise you for overpaying too much, or if you remortgage or switch mortgages before the fixed rate period ends. Make sure you fully educate yourself, and think about how your financial and personal situations could be different a few years from now, before opting for a fixed-rate mortgage.

Fixed rate mortgage FAQs

What happens when my fixed rate period ends?

Exactly what you’d expect: you’re automatically moved to the lender’s standard variable rate, which will likely be a lot higher than your fixed rate. Your monthly repayments will increase accordingly.

Can you pay off your fixed-rate mortgage early?

You can, but be sure to check the details of your mortgage: most lenders will charge an early repayment fee. Likewise, if you switch to another lender, you will probably be levied with an early repayment charge – which could be thousands of pounds. Some fixed-rate mortgages let you overpay a certain amount per year (up to 10%, for example) without being hit by early repayment fees

How long can I fix my interest rate for?

Most lenders, if you match the necessary criteria, will offer fixed-rate mortgages for 1, 2, 3, 5, and 10 years. Fixed-rate periods of 15 or 25 years were available in the past.

Is the lowest fixed rate always the best?

The lowest interest rate means you’ll have the smallest monthly repayments, but you should also factor in the length of the fixed term and any extra charges – such as arrangement and booking fees.

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