fixed vs variable rate mortgage
Of course, when you get a mortgage, one of the biggest choices you’ll make is whether or not to use a fixed or variable rate. Both have pros and cons, and which one is best for you will depend on your personal finance, how much risk you’re willing to take, and what you’re doing with your future. In this article, we tell you the essentials of fixed and variable rate mortgages so you can make an informed decision. Which do you think is best? A fixed or variable rate mortgage? Decide for yourself from reading this article about fixed vs variable rate mortgage options.
What Is a Fixed-Rate Mortgage?
A fixed-rate mortgage is where your interest rate, and therefore your monthly repayments, stay the same for a set period, usually 2, 3, 5, or 10 years.
Benefits:
- Fixed monthly payment
- Protection against higher interest rates
- Simpler budgeting
Drawbacks:
- Usually a fractionally higher initial rate than the variable products
- Early repayment charges (ERCs) if you want to pay out early
What Is a Variable Rate Mortgage?
Variable rate mortgages come in many different guises, but the two most popular are:
- Tracker mortgages: Follow the Bank of England base rate, plus a margin.
- Standard Variable Rate (SVR): The standard lender’s rate, which can be changed at any time.
Benefits:
- Lower introductory rates (in most instances)
- Flexibility, often lower or no early repayment fee
- Benefit from falling interest rates
Drawbacks:
- Pay more if rates rise
- Less budget security
Key Things to Consider When Making Your Decision
If you desire the security and guarantee of repayments, fixed is typically the option. If you are not bothered by the variability of repayments and want to take advantage of cheaper introductory interest rates, variable can be an option.
Market Trends
Will interest rates rise or fall? During a rising interest rate environment (e.g. 2024–2025), fixing can provide greater stability.
How Long You Plan to Live in the Property
A short fixed period (e.g. 2 years) might be suitable for those in the process of moving in the near future. If you are not going to move on, a 5-year fixed can provide long-term security.
Flexibility Needs
Some fixed offers restrict overpayments or early repayment. Variable offers are more flexible if you will need to remortgage earlier than intended or make lump sums.
Real-World Example
Jess, a first-time buyer in London, paid for a 5-year fixed-rate mortgage to lock herself into the low interest rates before they increased. Her friend James paid for a tracker mortgage. When interest rates increased, Sarah’s repayments stayed the same, which gave her peace of mind, while James had his repayments increase by over £150 per month.
How a Mortgage Broker Can Help
At Oportfolio, we consider your future goals, your risk appetite, and your current finances to enable you to make the best product choice. With dozens of deals at our fingertips, including premium costs at the high end, we’ll inform you of:
- How much each option would set you back each month
- What most likely will occur to interest rates
- The advantages and disadvantages that will apply for your case
What’s Next?
There isn’t a one-size-fits-all answer when choosing whether to have a fixed or variable rate mortgage. But by understanding the distinctions and weighing your options, you can make the choice suitable for you.
Seeking expert advice in fixed vs variable rate mortgage? Call Oportfolio today and we will guide you through each stage of your mortgage process.
