Fixed vs. variable-rate mortgages
Once you’ve decided how you’re going to pay back the capital and interest, it’s time to think about what type of mortgage you want. There are many different kinds available but they broadly fall into two categories: either with fixed or variable interest rates.
With a fixed-rate mortgage, you have the certainty of knowing your repayments will be the same for a set period – typically two to five years. At the end of the fixed term, the interest rate reverts to your lender’s – usually higher – standard variable rate (SVR) or, depending on your circumstances, you can remortgage for a better deal. With a variable-rate mortgage, the rate you pay could change at any time, while tracker mortgages change along with the Bank of England base rate. Variable-rate mortgages are usually cheaper than fixed-rate mortgages, your repayments could go up at any time, so they’re not ideal if you’re on a tight budget.
To find out more about fixed-rate, variable-rate and tracker mortgages and their pros and cons, read our guide to understanding different types of mortgages.