Fixed vs Variable Rate Mortgage | WIS Mortgages
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28th July 2023

Fixed vs Variable Rate Mortgage

In the realm of UK mortgages, the choice between fixed and variable rates is a topic of interest. Let's explore this matter with Wis Mortgages.

Unfortunately, interest rates are on the rise, causing uncertainty. To understand the difference between fixed and variable rate mortgages, let's start with the basics.

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What's a Fixed Rate Mortgage?

A fixed rate mortgage means the interest rate remains unchanged during a specific period, such as two or five years. You know exactly how much you'll pay each month, offering stability within that time frame.

What's a Variable rate Mortgage?

On the other hand, a variable rate mortgage is unpredictable. It is tied to factors like the Bank of England base rate or the bank's internal rate, known as the standard variable rate. If these components change, your monthly payments may fluctuate. While rates have been increasing recently, they can also go down, providing potential benefits.

Variable rate mortgages come in various types. The most popular is the tracker mortgage, which follows the Bank of England base rate. Discounted rate mortgages, linked to the bank's standard variable rate, are also common. Finally, there's the standard variable rate itself, which banks use after a mortgage deal ends.

What are the risks associated with a variable rate Mortgage?

Variable rate mortgages can be volatile, making it challenging to budget monthly payments. Despite this, they remain more popular than in the past due to their current lower rates compared to some fixed rates. People are willing to take the risk, as long as the fixed rate doesn't surpass their variable rate alternative.

Is Fixed rate mortgages better?

While fixed rates offer certainty over a specific time frame, some people prefer variable rates due to concerns about potential interest rate hikes. For instance they may think interest rates may drop in the near future. If you decide to break your mortgage product deal early, in particular a fixed rate deal, it is likely that you will end up paying a penalty called an early repayment charge. These penalties can be quite large depending on when you exit the product. Choosing the right product does depend on individual circumstances. Some like the certainly of a fixed payment which is easier to budget for. At times where rates are on the rise fixed rate mortgages are more popular.

Is it best to remain on standard variable rates if my mortgage deal is finished?

If your mortgage deal is ending, reverting to a standard variable rate might not be wise, as it could increase along with any potential interest rates rises. When comparing a standard variable rate with a tracker mortgage, the latter might be a better option, as trackers often have lower rates and flexible terms. However, the tracker may also carry product fees.

Ultimately, choosing the right mortgage product depends on personal circumstances. It's crucial to consider all available options and make an informed decision. If in doubt, seek advice from qualified professionals like those at Wis Mortgages.

Remember, selecting a mortgage is a significant decision, so take the time to understand your options. Wis Online Mortgages Made Simple provides guidance and support throughout the process.

As a mortgage is secured against your home, it may be repossessed if you do not keep up the mortgage repayments.

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