Should You Fix Your Mortgage Rate – and For How Long?

Category: First Time Buyers, Mortgage Advice

With fixed mortgage rates now dipping below many variable and tracker rates, more homeowners and buyers are considering fixed deals for greater stability.

As you weigh your options, you’ll likely face a key decision: should you fix your mortgage rate, and if so, for how long? The most popular choices are two-year and five-year fixed-rate deals. Each comes with its own set of features, benefits, and drawbacks.

Let’s explore these options and what alternative mortgages are available, to help you understand which might suit your needs best.

What is a fixed-rate mortgage?

A fixed-rate mortgage is a property finance loan where your interest rate and monthly repayments stay the same for a set period. This period is usually one, two, or five years.

What is a variable rate mortgage?

A variable-rate mortgage means your interest rate can go up or down, often tracking the Bank of England’s base rate or your lender’s own standard variable rate (SVR). Your monthly repayments can fluctuate accordingly.

What is a tracker mortgage?

A tracker mortgage is a type of variable-rate mortgage where the interest rate “tracks” an external rate, most commonly the Bank of England’s base rate, plus a set percentage determined by your lender.

Why Are Fixed Rates So Popular Now?

Recently, fixed-rate deals have often been priced lower than many variable or tracker options. For many, this makes fixing seem like a straightforward choice for certainty and peace of mind, especially during periods of economic uncertainty.

Fixed-rate mortgages

Fixed rate mortgages are a practical choice for clients who wish to budget plan and know their monthly mortgage payment won’t change for the duration of the fixed period. They have other advantages to consider including:

Flexibility: A shorter fixed period means you can review your mortgage sooner. If rates fall further or your circumstances change, you’re not locked in for long.
Potential to benefit from lower rates: If the market improves, you can switch to a better deal after two years.
Lower early repayment charges (ERCs): If you need to move or repay your mortgage early, you’ll may face smaller penalties compared to longer fixes.

In contrast, points to consider about fixed-rate mortgages include:

Less long-term security: Your rate is only fixed for a set period of time, so you’ll need to remortgage or accept the lender’s SVR after the term ends, which could be higher. However, if you chose to remortgage you can opt for another fixed rate mortgage.
Frequent remortgaging: You may need to go through the remortgaging process more often, which can be time-consuming and may involve fees.
Potential for higher future rates: There’s always a risk that rates could rise by the time your deal ends, increasing your repayments.

Variable rate mortgages

If you’re considering an alternative to fixed interest-rate mortgages, a variable rate loan might be the solution. Advantages include:

Potential for lower payments: If the Bank of England base rate (or your lender’s variable rate) drops, your interest rate, your monthly payments can decrease and potentially save you money.
Flexibility: Some variable rate mortgages come with lower early repayment charges (ERCs). This can make it easier to switch deals or pay off your mortgage early.
Benefit from rate cuts: If interest rates fall, you may benefit immediately, unlike with a fixed-rate mortgage where your rate will remain the same until the end of your fixed period.

The disadvantages of variable rate mortgages to consider are:

Uncertainty: Your monthly payments can fluctuate, making it harder to budget. If rates rise, your payments will increase.
Potential for higher costs: If the base rate or your lender’s variable rate goes up, your mortgage costs may rise, sometimes significantly.
Possible lender discretion: With standard variable rate mortgages, the lender can change the rate at any time, even if the base rate doesn’t move.

Tracker rate mortgages

Another type of mortgage that has grown in popularity I recent years is a tracker mortgage. Tracker mortgages can be a good option if you’re comfortable with some risk and want to benefit from any potential rate cuts. However, they’re not ideal if you need certainty over your payments or are concerned about rising interest rates. Advantages include:

Transparency: Your rate is directly linked to an external benchmark (usually the Bank of England base rate) plus a fixed margin, so you always know exactly how your rate is calculated.
Potential for savings: If the base rate falls, your mortgage rate and monthly payments may decrease also, so you could pay less.
Some flexibility: Some tracker deals offer lower early repayment charges or even allow you to exit the deal without penalty, though this isn’t always the case. Always check the terms.

Tracker rate considerations include:

Uncertainty: Your payments can go up if the base rate rises, making it harder to budget and plan ahead.
No cap: Most tracker mortgages don’t have an upper limit, so if the base rate rises sharply, your payments could increase significantly.
Short-Term deals: Tracker mortgages are often only available for a set period after which you may move onto your lender’s standard variable rate, which may be higher.
Introductory offers: Some tracker rates look attractive at first but may revert to a less competitive rate when the initial period ends.

Helping you decide

Choosing between fixed-rate, variable or tracker mortgage is a personal decision that depends on your circumstances, priorities, and risk appetite. All options offer unique advantages and disadvantages.

If you’re unsure which option is best for you, or if you’d like to discuss your specific situation in more detail, don’t hesitate to reach out. At Exe Mortgages, we’re here to provide trusted, impartial advice to help you make the right choice for your needs and lifestyle.

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