Which type of Mortgage is right for me?

Which Type of Mortgage Is Right for Me - Fixed, Tracker or Variable?

Finding the best mortgage for your needs is important, and there are a number of different options to choose from. With most lenders moving away from interest-only mortgages, the vast majority of mortgages available today are repayment mortgages, which include both interest and capital payments.

The main types of mortgages in this category are:

• Fixed rate mortgage
• Tracker mortgage
• Variable rate mortgage

What Is a Fixed Rate Mortgage?

A fixed rate mortgage has an interest rate that is set for a fixed period of time. This period can vary, but common options include one year, two years, three years, five years or ten years.

As the name suggests, the amount you pay each month stays the same, regardless of changes to interest rates. For example, if your agreed rate is 4% and the Bank of England base rate rises, you will continue to pay 4% until the fixed term ends.

The main benefit of a fixed rate mortgage is certainty. You know exactly how much your monthly repayments will be, which can be reassuring if you have a tight or fixed budget.

Fixed rate mortgages are often more expensive at the outset, and if interest rates fall, you won’t benefit from lower repayments. However, many people feel the stability they offer makes them the right choice.

What Is a Tracker Mortgage?

A tracker mortgage has a variable interest rate that follows, or “tracks”, an economic index - usually the Bank of England base rate.

For example, if your mortgage tracks at 1% above the base rate and the base rate is 0.5%, your mortgage rate would be 1.5%. If the base rate rises to 1%, your rate increases to 2%. If it falls to 0.25%, your rate drops to 1.25%.

Tracker mortgages typically last for a set number of years, although lifetime tracker deals are also available. They can be a good option if you believe interest rates will stay low or fall. However, if the base rate rises, your monthly repayments will increase, so you need to be financially flexible.

What Is a Variable Rate Mortgage?

A variable rate mortgage allows the interest rate to rise or fall at the lender’s discretion. While these rates often move in line with the Bank of England base rate, they do not have to follow it exactly.

This means lenders may increase rates beyond base rate changes, potentially making repayments more expensive. However, they may also reduce rates for commercial reasons, which could lower your monthly payments.

Variable rate mortgages offer flexibility and the potential to save money, but they require borrowers to be comfortable with fluctuating repayments.

Which Mortgage Type Should I Choose?

Each type of mortgage has its own advantages, and the right choice depends on your personal circumstances. Fixed rate mortgages remain popular due to the stability they offer, giving borrowers peace of mind over monthly costs.

If you have greater financial flexibility, tracker or variable rate mortgages may be more appealing, as they offer the potential for lower repayments when interest rates fall. Whichever option you choose, it’s important to seek professional advice and select a mortgage that suits your financial situation.

Summary

Choosing between a fixed, tracker or variable rate mortgage depends on how much certainty you need and how comfortable you are with changes to your monthly repayments. Fixed rate mortgages provide stability, while tracker and variable rate options offer flexibility and potential savings when interest rates are favourable. By understanding how each mortgage type works and seeking expert advice, you can make a confident decision that supports your financial goals and property plans.