A fixed-rate mortgage keeps the same interest rate for an agreed period, usually two to five years, so your payment does not change. A tracker mortgage follows another rate, normally the Bank of England’s Bank Rate plus a set margin, so your payment can rise or fall. Fixed rates buy certainty, trackers can be cheaper and more flexible, and which costs less depends on where rates go, which nobody can predict.
Note: this is general information, not mortgage or financial advice. The rates in the examples are illustrative, not current offers, and your own costs depend on the lender and product. Mortgages are secured on your home, so talk to a regulated adviser or lender and check MoneyHelper before choosing.
What a fixed-rate mortgage is
With a fixed rate, the lender promises not to change the interest rate for the fixed period. The most common periods are two and five years, with other lengths such as three and ten years offered by some lenders. Your monthly payment for a repayment mortgage stays the same through that period, even if market rates move.
When the fixed period ends, the mortgage normally moves onto the lender’s standard variable rate (SVR) unless you choose a new deal. SVRs are often higher than the best deals on offer, so most borrowers arrange a new product before the fixed period ends. Many lenders let you lock in a new deal well in advance, often several months, so check how early yours allows.
The trade-off for certainty is usually a charge for leaving early. If you repay the mortgage or switch before the fixed period finishes, you may pay an early repayment charge (ERC), often a percentage of the amount you repay, with the percentage commonly falling each year. Many lenders also allow overpayments up to a limit each year, such as 10% of the balance, without a charge, but this depends on the lender.
What a tracker mortgage is
A tracker mortgage follows a published rate, most often the Bank of England’s Bank Rate, and adds a margin. If a tracker is “Bank Rate plus 0.5%” and Bank Rate were 4.0%, your rate is 4.5%. When Bank Rate changes, your rate normally changes by the same amount, within a month or so, depending on the terms.
There are two main kinds. A term tracker follows the rate for a fixed period, such as two years, and then moves to the SVR. A lifetime tracker follows the rate for the whole mortgage. Some trackers have a collar, a minimum rate below which your rate will not fall, even if Bank Rate does. Check for that in the key facts, because it can limit the benefit if rates drop.
Trackers often come with no or lower early repayment charges than fixed deals, so you may be able to leave without a penalty. That flexibility can be valuable if you expect to move, remortgage or overpay heavily. The price is exposure to rate changes: your payment can go up, sometimes quickly.
How a change in rate affects your payment
The effect of a rate change is easiest to see with real numbers. For a £250,000 repayment mortgage over 25 years, the monthly payment at different rates, from the House of Calculator mortgage engine, is:
| Interest rate | Monthly payment | Interest-only equivalent |
|---|---|---|
| 3.5% | £1,251.56 | £729.17 |
| 4.0% | £1,319.59 | £833.33 |
| 4.5% | £1,389.58 | £937.50 |
| 5.0% | £1,461.48 | £1,041.67 |
| 5.5% | £1,535.22 | £1,145.83 |
| 6.0% | £1,610.75 | £1,250.00 |
| 6.5% | £1,688.02 | £1,354.17 |
Each rise of one percentage point adds roughly £70 to £77 a month on a repayment mortgage of this size. Going from 4.5% to 5.5% costs £145.64 more a month, which is £1,748 over a year. On an interest-only mortgage the jump is £208.33 a month for the same rise, because the whole balance carries the extra interest. How mortgage repayments are calculated sets out how the payment is calculated, and the formula is the same one the engine uses.
This is why borrowers with a tracker need a buffer. If your payment can rise by £150 a month and you would struggle, a fixed rate may suit you better regardless of what might be cheaper on average.
A two-year cost comparison
To compare, we need the total cost over the period, not only the starting rate. Take a £250,000 repayment mortgage over 25 years and compare two hypothetical products for the first two years:
- Fixed: 4.6% for two years, with a £999 product fee.
- Tracker: Bank Rate plus a margin, starting at 4.2% with no fee.
The fixed product costs £1,403.81 a month for 24 months, which is £33,691.42, plus the £999 fee, a total of £34,690.42. After two years the balance is £238,823.74, so you have repaid £11,176.26 of the loan. The cost of borrowing, meaning interest and fee, is £34,690.42 minus £11,176.26, which is £23,514.17.
The tracker is harder because the rate moves. Assume it starts at 4.2% and then, after 12 months, changes by one of several amounts:
| Tracker rate in year 2 | Year 2 monthly payment | Two-year interest cost | Cheaper or dearer than fixed |
|---|---|---|---|
| 3.2% (down 1 point) | £1,215.97 | £18,104 | £5,410 cheaper |
| 4.2% (no change) | £1,347.36 | £20,532 | £2,982 cheaper |
| 5.2% (up 1 point) | £1,486.06 | £22,965 | £549 cheaper |
| 6.2% (up 2 points) | £1,631.70 | £25,403 | £1,889 dearer |
| 7.2% (up 3 points) | £1,783.85 | £27,845 | £4,331 dearer |
The tracker started 0.4 percentage points cheaper and saved the £999 fee, so it beat the fixed deal unless the rate rose by more than about 1.2 points after a year. That break-even point is the useful number. It tells you how much risk you are taking: you are betting that Bank Rate will not rise by more than that, relative to the fixed price. These are illustrative figures and not a forecast, and a real tracker could rise sooner or by different amounts.
The comparison also shows why the monthly payment is a poor measure on its own. The fixed deal’s payment was £56 a month higher in year one, yet the arrangement fee is a separate cost that people forget. Always compare total cost, and check whether the fee can be added to the loan, in which case you pay interest on it.
Fees, charges and extras to compare
The headline rate is only part of the price. Check each of these in the lender’s key facts illustration:
- Arrangement or product fee. Some deals charge a fee of several hundred pounds or more. A lower rate with a high fee can cost more on a smaller mortgage.
- Early repayment charges. Find the percentage and the period. On a £240,000 balance, a 3% ERC is £7,200, while 1% is £2,400, which could outweigh any saving from switching.
- Overpayment limits. If you plan to overpay, check how much you can pay without a charge.
- Valuation, legal and broker fees. Some products include free valuations or legal work, which is worth money.
- Portability. If you may move home, ask whether the deal can go with you.
- What happens at the end. Check the SVR the loan reverts to, and when you can arrange the next deal.
The annual percentage rate of charge (APRC) helps to compare whole-term costs, but it makes assumptions about what happens after the deal ends, so use it as one measure among several.
Who tends to choose each type
There is no right answer for everyone, but some patterns hold. A fixed rate often suits people who:
- have a tight budget where a payment rise would cause real stress,
- want to know their costs for a set period, for example a new buyer with little spare income,
- have no plans to move or repay early during the fixed period.
A tracker is more often considered by people who:
- have a financial cushion to absorb a rate rise,
- want to overpay a lot or may repay in full soon, and so value low or no early repayment charges,
- are happy to accept uncertainty in return for a lower starting rate or the chance of a falling rate.
Some borrowers split the loan, with part on a fixed rate and part on a tracker, if their lender offers it. That reduces the exposure to rate changes and keeps some flexibility. Lenders also test affordability at higher rates than you pay, which is why How much mortgage can you afford? is worth reading before you choose a product.
Mistakes to avoid
- Choosing the lowest rate without including the fee and the early repayment terms.
- Assuming a tracker will keep falling, or that a fixed rate will always be a good deal in hindsight. Neither can be known in advance.
- Forgetting that the fixed period ends. Diary the date and look at new deals well in advance.
- Taking a tracker without checking that you could afford the payment if the rate rose by two or three points.
- Ignoring the collar on a tracker that cannot fall below a stated rate.
- Overpaying beyond the penalty-free limit during a fixed rate without realising a charge applies.
- Not asking a broker or lender about product transfers, which are often available from your current lender with less paperwork.
If you want to understand how your balance reduces over the years, Compound interest explained, with examples explains how interest builds on a balance, which is the same idea in reverse for a repayment mortgage.
Try the calculator
Enter the amount, rate, term and any overpayment in the Mortgage Calculator to see the monthly payment and total interest. Run it at your current rate and at one or two points higher to see how a tracker could move.
Frequently asked questions
Is a fixed or tracker mortgage cheaper?
It depends on the rate, fees and what happens to interest rates. A tracker is cheaper if the rate stays flat or falls, while a fixed rate wins if rates rise by more than the break-even amount. Compare the total cost over the deal period, including fees.
Can I leave a tracker mortgage without paying a penalty?
Some trackers have no early repayment charges, but not all. Check the key facts for each product. Fixed-rate deals more often have charges during the fixed period.
What happens when my fixed rate ends?
You usually move to the lender’s standard variable rate unless you choose a new deal. The SVR is often higher than new products, so arrange a new deal or switch before the end date.
Does a tracker rate change when the Bank of England changes Bank Rate?
For Bank Rate trackers, yes, normally by the same amount within a short time. The exact timing and any floor are in your terms, so check the details.
Can I overpay a fixed-rate mortgage?
Many lenders allow overpayments up to a limit each year, such as 10% of the balance, without a charge during the fixed period. Check yours, because above the limit an early repayment charge may apply.