The types
- Fixed rate: the rate and payment are locked for the deal period (2, 3, 5, sometimes 10 years). Certainty. Early repayment charges if you leave early.
- Tracker: the rate follows the Bank of England base rate plus a margin. Your payment changes when the base rate does. Often cheaper to leave early.
- Standard variable rate (SVR): what you fall on to when a deal ends. Usually much more expensive. Avoid by remortgaging on time.
Two years or five?
| 2-year fix | 5-year fix | |
|---|---|---|
| Good if | You might move, get a pay rise, or want to remortgage at a lower LTV once you have paid some off | You want to know your payment for a long time and are staying put |
| Risk | Rates could be higher when it ends; you pay fees again sooner | Rates could fall and you are locked in; early repayment charges if life changes |
| Fees | Paid more often | Paid less often |
A reasonable rule for first-time buyers: if you can see yourself in this home for five years and the payment is comfortable, a five-year fix buys peace of mind. If you are likely to move or your income will jump, two or three years keeps options open. Most fixes are portable (you can move them to a new home) but check.
Fees vs rate
A £999 fee on a £150,000 mortgage is worth about 0.35% on the rate over two years. On small mortgages, the no-fee slightly-higher-rate deal is often cheaper overall. Compare the total cost over the deal period, not the headline rate.
Overpaying
Most deals let you overpay 10% of the balance a year without penalty. Even £50 a month knocks years off. Check the terms.
When the deal ends
Put a reminder in your calendar for six months before. Rates can be locked in up to six months ahead, and you can switch if a better one appears before you complete. Rolling on to the SVR can cost hundreds a month.
A note on the numbers. Thresholds, schemes and typical costs are correct as far as we know at the time of writing and are for England and Northern Ireland unless we say otherwise. Rules change and lenders differ. Check the current position, and get advice from a qualified broker before you commit.
Quick answers
Should I try to time the market?
Nobody reliably predicts rates. Choose the deal that suits your life and that you can afford if rates rise; if they fall, you can sometimes switch, at a cost.
What is an early repayment charge?
A penalty for paying off or leaving a fixed deal before it ends, typically 1% to 5% of the balance, reducing each year. It is why fixing for ten years is a big commitment.
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