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Table of Contents
- What is a fixed-rate mortgage?
- Fixed-rate mortgage pros and cons
- How long should I fix my mortgage for?
- What will my fixed-rate mortgage cost?
- What interest rate will I pay on a fixed-rate mortgage?
- What happens when my fixed-rate mortgage ends?
- Can you leave a fixed-rate mortgage early?
- Which is better: A fixed-rate or variable rate mortgage?
- When is a good time to fix your mortgage rate?
- Can first-time buyers get a fixed-rate mortgage?
- Can you get fixed-rate buy-to-let mortgages?
Fixed-rate mortgages are popular among homebuyers because of the certainty they provide over your mortgage rate and monthly repayments. Read on to learn more about the pros and cons of fixing your rate, and whether a fixed-rate mortgage could be right for you.
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What is a fixed-rate mortgage?
A fixed-rate mortgage guarantees you’ll pay the same mortgage rate for the time over which you fix. This can provide peace of mind that your monthly mortgage repayments won’t change while you’re within the fixed term.
Most fixed-rate mortgages tend to be for terms of two years or five years, although one-, three-, seven- and 10-year options can also often be found.
Once the fixed-rate period comes to an end, you can expect to be moved onto your lender’s standard variable rate (SVR), which is usually higher than the fixed rate you’ve been paying. For this reason, many people remortgage to a new deal to coincide with their fixed rate term ending and avoid paying the SVR.
» MORE: Check current mortgage rates
Fixed-rate mortgage pros and cons
There are several benefits to fixed-rate mortgages, but some drawbacks to think about too.
Advantages of fixed-rate mortgages
- You know exactly how much your monthly mortgage repayments will be for the duration of the fixed term.
- You’ll have peace of mind that your repayments will remain the same, even if interest rates generally increase.
- The certainty over your repayments makes it easier to budget.
- Fixed mortgage rates tend to be lower than lender’s standard variable rates.
Disadvantages of fixed-rate mortgages
- If wider interest rates fall, your monthly repayments won’t drop as they normally would with a tracker mortgage or if you’re paying a lender’s SVR.
- Fixed mortgage rates are often higher than variable rates.
- Fixed mortgages can have large upfront fees, sometimes in excess of £1,000.
- Significant early repayment charges may be payable if you want to exit a fixed rate deal early.
» MORE: Best mortgage lenders
How long should I fix my mortgage for?
How long you should fix your mortgage usually depends on your circumstances, preferences and what you think might happen to interest rates going forward.
If you want certainty over your mortgage payments for the long term and would rather not have the expense and effort of remortgaging again in a couple of years, a five year fixed-rate mortgage, or even longer, might be worth considering. If you believe mortgage rates might increase soon, locking into a rate available now for a longer amount of time may also work to your advantage.
However, the flipside is that interest rates might fall, and if you’re locked into a fixed-rate mortgage for a long period of time, you could miss out on these lower rates. You may also want to consider fixing for a shorter term if you intend to move in the near future. The thinking here is that you may be able to avoid costly early repayment charges if you can’t or don’t want to port your mortgage to the new property.
Ultimately, knowing how long to fix isn’t always easy. We’d always suggest approaching a mortgage adviser if you’re in any way unsure.
» MORE: All about mortgage advice
What is the longest fixed-rate mortgage in the UK?
The longest fixed-rate mortgages in the UK typically allow you to fix your rate for 10 years. However, longer fixed rate periods are sometimes available, and one lender is currently offering mortgages in the UK which offer the option to fix for up to 40 years.
What will my fixed-rate mortgage cost?
The overall cost of your fixed-rate mortgage will depend on a number of factors including:
- the size of the mortgage you want
- the mortgage term you choose
- the interest rate you pay
- the mortgage fees you’re charged
» MORE: Try our mortgage interest rate calculator
What interest rate will I pay on a fixed-rate mortgage?
Interest rates on fixed-rate mortgages can differ widely between deals and lenders. Some of the factors which will determine the mortgage rate you’re able to get include:
The length of the fixed-rate period
Fixed mortgage rates can be significantly different depending on the period of time you want to fix. For example, sometimes two-year fixed-rate mortgages will generally have higher rates than five-year mortgages, other times the reverse might be true.
Your loan-to-value
How much you want to borrow relative to the property’s overall value is referred to as your loan-to-value, or LTV. So if you have a £10,000 deposit to put towards a £100,000 home and need to take a £90,000 mortgage to cover the rest, you’re borrowing at 90% LTV.
The higher the proportion of a property that you need to pay for with a mortgage, the higher your LTV and, in turn, the greater the risk a lender believes they are taking on. For this reason, you can generally expect to pay a higher interest rate on a 90% LTV mortgage compared to a mortgage at 60% LTV or less, where a deposit of at least 40% has been put down.
Arrangement fees
Some mortgages come with an arrangement fee, while others don’t. Sometimes these fees cost up to £2,000 or maybe more, so there’s an obvious appeal to a no-fee option. However, a mortgage with no arrangement fee will generally carry a higher interest rate to compensate. If you have the choice, it’s important to compare the total cost of mortgages including fees, rather than just focusing on the interest rate, to see which fee/rate combination works out cheaper overall.
It’s often also possible to add arrangement fees onto your mortgage, but be aware that this will increase your payments and the amount of interest you pay overall.
Your credit standing
As with most forms of borrowing, having a good credit score can open the path to better mortgage rates. You may still be able to get a mortgage with a less-than-perfect credit score, but you’re likely to find the rates you’re offered are higher as a result.
» MORE: Try our mortgage repayment calculator
What happens when my fixed-rate mortgage ends?
When you come to the end of a fixed-rate period, you’ll automatically move onto your lender’s standard variable rate or SVR, unless you remortgage to a new deal. For many borrowers, remortgaging makes sense, as SVRs tend to be higher than the fixed rate you’ve just left behind.
To avoid the risk of slipping onto the SVR, it’s sensible to start looking at new deals ahead of your current fixed rate period ending. Usually mortgage offers are valid for between three and six months, so that’s a good timeframe to begin your search.
» MORE: Compare remortgage deals
Can you leave a fixed-rate mortgage early?
It is possible to come out of a fixed-rate mortgage early, but you may have to pay an early repayment charge (ERC) for doing so. The charge is usually calculated as a percentage of the sum being repaid, and may be as high as 5%, or perhaps more.
The ERC may be a flat rate for the duration of the term or it might decrease as the remaining mortgage term reduces. However, even with an ERC as low as 1%, if you want to repay an outstanding mortgage balance of £200,000 early, this will result in a charge of £2,000.
» MORE: When can you remortgage?
Which is better: A fixed-rate or variable rate mortgage?
Ultimately, this will come down to your own circumstances and attitude to risk.
A variable rate mortgage, such as a tracker mortgage, may have a lower interest rate at the outset and if interest rates fall then your repayments will, too. However, if interest rates rise your repayments will also rise, and you could end up paying more overall than if you had fixed.
If you prefer the certainty of knowing exactly what your repayments will be for a set period of time then a fixed-rate mortgage may be a better option for you. On the other hand, fixed-rate mortgages often have early repayment charges, whereas some variable rate mortgages may not. Always check if this is the case and seek mortgage advice if you are unclear on what is right for you.
» MORE: Should I get a fixed or variable rate mortgage?
When is a good time to fix your mortgage rate?
Much depends on your personal circumstances, but it may be worth considering a fixed-rate mortgage if:
- your current fixed-rate deal is coming to an end and you want certainty over your repayments going forward.
- you currently have a variable rate mortgage and you think the Bank of England may be about to raise the base rate of interest.
- interest rates have been falling and you don’t think they’re likely to drop much further.
It’s usually best to speak to a mortgage broker or lender if you’re in any way unsure what your best option might be.
If you want to discuss your mortgage options, NerdWallet has partnered with L&C, the UK’s leading fee-free mortgage broker, to offer you expert advice.
Can first-time buyers get a fixed-rate mortgage?
Yes, fixed-rate mortgages are definitely an option to explore if you’re a first-time buyer, because you’ll have certainty over your mortgage repayments at a time when you may find money is tight.
» MORE: First-time buyer mortgages
Can you get fixed-rate buy-to-let mortgages?
Yes, fixed-rate mortgages are an option for landlords wanting a buy-to-let mortgage on their rental property.
» MORE: Buy-to-let mortgages
Dive even deeper
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