Logo

Choosing between a fixed and a variable mortgage is one of the biggest financial decisions you'll make as a homeowner. Get it right and you'll sleep soundly for years. Get it wrong and you could find your monthly payment jumping by hundreds of pounds at the worst possible moment. The good news is that the choice comes down to a handful of practical questions about your budget, your plans and your tolerance for uncertainty.

How a fixed rate actually works

A fixed rate does exactly what it says on the tin. Your interest rate is locked for a set period — usually two, three, five or ten years — and your monthly payment stays the same regardless of what happens to the Bank of England base rate or the wider mortgage market. If rates rise sharply, you're protected. If they fall, you won't benefit until your fix ends.

The trade-off is that certainty is priced in. You'll often pay slightly more in the early years than you would on a variable deal, and you'll usually face an early repayment charge if you want to leave before the period finishes. These charges typically run between 1% and 5% of the outstanding balance, which on a £200,000 mortgage could mean thousands of pounds.

Fixed deals also usually come with an arrangement fee, often around £999, and an annual overpayment limit — commonly 10% of the balance — that lets you chip away at the debt without penalty.

The variable options, explained

"Variable" isn't one thing. There are three main types, and they behave quite differently.

• Tracker mortgages follow the Bank of England base rate plus a set margin. If the base rate is 4% and your margin is 0.75%, you pay 4.75%. The link is automatic, so your payment moves the month after any base rate change.
• Discount mortgages track your lender's standard variable rate minus a discount. The discount is fixed, but the underlying rate isn't — your lender decides when to change it, and there's no rule forcing them to pass on base rate cuts in full.
• Standard variable rate (SVR) is what you revert to when a deal ends. It's usually the most expensive option and can sit several percentage points above the best deals on the market.

Variable deals often come with lower arrangement fees, more generous overpayment terms and smaller early repayment charges — sometimes none at all. That flexibility is worth real money if your circumstances might change.

The maths of the first few years

Suppose you're borrowing £200,000 over 25 years. A fixed rate at 5.2% would cost roughly £1,193 a month. A variable deal at 4.5% would cost about £1,112 — a saving of around £81 a month, or just under £1,000 a year.

That looks convincing until you factor in what happens next. If your variable rate rises to 5.5%, your payment climbs to about £1,228, wiping out the saving and then some. If it reaches 6.5%, you're paying around £1,350 a month — £157 more than the fixed deal you turned down.

So the question isn't simply "which is cheaper today?" It's "how much would a rise hurt, and how likely is it?" A sensible rule of thumb is to stress-test the variable option at two or three percentage points above its current rate. If the resulting payment would stretch your budget, the fixed deal is probably worth the premium.

Matching the deal to your circumstances

A fixed rate tends to suit you if:

• Your budget is tight and you need to know exactly what leaves your account each month.
• You're on a single income, or one that could change.
• You'd struggle to absorb a £100–£200 increase without borrowing or cutting essentials.
• You plan to stay in the property for the length of the fix.

A variable deal may make more sense if:

• You have a healthy emergency fund — ideally three to six months of outgoings.
• You plan to overpay significantly or clear the mortgage early.
• You might sell or move within a couple of years and want to avoid early repayment charges.
• You think rates are more likely to fall than rise, and you can live with being wrong.

Questions to ask before you commit

Whatever you're leaning towards, get clear answers on a few specifics before signing.

• What is the total cost over the deal period? Add the arrangement fee, any valuation fee and the interest paid — not just the headline rate.
• What will I revert to? Find out the SVR and work out what that would cost you monthly.
• What are the early repayment charges? Ask for the exact percentage for each year of the deal.
• How much can I overpay? And does the allowance reset annually?
• Can I port the mortgage? Useful if you might move home during the fix.

Finally, remember that lenders assess affordability at a higher rate than the one you'll actually pay, so a variable deal that looks comfortable on paper may still be stress-tested. And whatever you choose, revisit it a few months before the deal ends. Loyalty to a lender rarely pays — the best rates are usually reserved for those who switch.