When comparing mortgages, one of the key choices is how the interest rate works. Fixed and variable mortgage products behave differently, and understanding that difference can help you consider how much payment certainty or flexibility you want.
Fixed Rate Vs Variable Rate – What Is A Fixed-Rate Mortgage?
A fixed-rate mortgage normally keeps the interest rate unchanged for an agreed initial period. This means the required monthly mortgage payment is generally predictable during that period, assuming no other changes to the loan.
What Happens When The Fixed Period Ends?
At the end of the fixed period, you will normally move onto the lender’s applicable reversion rate unless another mortgage product has been arranged. This is why the product end date should be reviewed in advance.
What Is A Variable-Rate Mortgage?
With a variable mortgage, the interest rate can change. The way it changes depends on the product. This means your required monthly repayment may increase or decrease during the mortgage term.
What Is A Tracker Mortgage?
A tracker is one type of variable mortgage. Its rate usually follows a specified external rate plus a set margin, subject to the product terms. If the tracked rate changes, the mortgage rate can change too.
Why Might Payment Certainty Matter?
Some borrowers value knowing what their mortgage payment will be during the initial deal period because it makes household budgeting more predictable. Others may be comfortable with the possibility of payment changes. The appropriate balance depends on individual circumstances.
What Else Should You Compare?
The rate type is only part of the mortgage. Product fees, Early Repayment Charges, overpayment allowances, incentives, the length of the deal and the overall cost should also be considered.
Can You Switch Before A Deal Ends?
It may be possible to change a mortgage before the current deal ends, but Early Repayment Charges or other costs may apply. The financial impact should be understood before making a change.
How HFA Mortgage & Protection Can Help
HFA Mortgage & Protection can explain the differences between mortgage products and help you compare suitable options in the context of your plans and finances. Visit https://hfassociates.uk to speak to our team.
FAQs – Fixed Rate Vs Variable Rate Mortgages
Does a fixed rate mean my payment can never change?
The interest rate is normally fixed for the agreed product period. Your mortgage terms explain how the payment is calculated.
Can a variable mortgage payment go up?
Yes. If the applicable mortgage rate increases, the required payment may increase.
Is a fixed mortgage always better than a variable mortgage?
No. Suitability depends on your circumstances, plans, preferences and the products available.
What is a tracker mortgage?
It is a variable-rate mortgage that generally tracks a specified external rate plus a margin, subject to the product terms.
Should I compare fees as well as the rate?
Yes. Fees and other product features can affect the overall cost and suitability.
Disclaimer:
There may be a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances but will range from £195 to £1500.
Your home may be repossessed if you do not keep up repayments on your mortgage.
