Fixed Rate VS Variable Rate Mortgages | Real Mortgage Advice

Introduction

Gemma:
Hello, welcome back to our channel and podcast. My name is Gemma, and here at WSI, we talk about all things relating to money, mortgages, and positive money mindset.
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On today’s episode of Let’s Talk Money and Mortgages, we have Ifthi joining us again. Ifthi is a trained accountant and mortgage advisor with over 10 years of experience and is also one of the founding directors here at WSI.

Ifthi:
Hi Gemma, I’m very well, thank you.

Q&A

Q: What is a fixed-rate mortgage?
Ifthi:
A fixed-rate mortgage is the most popular type. When you sign up for a fixed-rate deal (commonly 2, 3, or 5 years), your interest rate remains fixed for that period, even if the Bank of England changes its rates or the bank’s standard variable rate goes up or down.
For example, if you have a 2% fixed rate, it stays 2% for the deal period, even if the bank’s standard variable rate rises.

Q: What is a variable-rate mortgage?
Ifthi:
A variable-rate mortgage means your interest rate can change during the deal period.
Tracker mortgage: Tracks the Bank of England base rate plus a set percentage. If the base rate changes, your mortgage rate changes.
Discounted rate mortgage: Tracks the bank’s standard variable rate (SVR), with a discount applied. If the SVR changes, your rate adjusts accordingly.
Standard variable rate (SVR): Applied after a deal ends or for people not on a special deal. Typically more expensive than a deal rate.
Capped variable rate: Less common; variable but has an upper limit to how high the rate can go.

Q: How do tracker and discounted rates work?
Ifthi:
Tracker: Bank of England base rate + X%. If the base rate drops, you benefit. No early repayment charges are usually applied.
Discounted rate: Bank’s SVR minus a discount. If you leave the deal early, an early repayment charge may apply.

Q: What is a flexible fix mortgage?
Ifthi:
A flex fix mortgage is essentially a fixed-rate mortgage but allows you to break the deal without an early repayment charge. Not widely offered, but it combines the security of fixed rates with the flexibility of variable rates.

Q: Why choose a fixed-rate mortgage?
Ifthi:
Certainty: Your monthly payments remain the same, which is ideal for budgeting.
Peace of mind: You won’t be affected by interest rate increases.
Popularity: Many banks offer fixed rates, making them widely accessible.

Q: What are the downsides of a fixed-rate mortgage?
Ifthi:
Early repayment charges: Breaking the mortgage early can be costly.
No benefit if rates drop: If the Bank of England reduces rates, you won’t benefit.
Long-term fixed rates: 10-year deals can limit flexibility; circumstances may change, requiring you to move or change your mortgage.

Q: Why choose a variable-rate mortgage?
Ifthi:
Tracker mortgages: Benefit from falling Bank of England rates and usually no early repayment charges.
Discounted rates: Can be cheaper than fixed rates but may include early repayment penalties.
Note: Variable rates are riskier if rates rise, so they suit borrowers comfortable with potential fluctuations.

Q: Are variable rates good in today’s market?
Ifthi:
Currently, the Bank of England base rate is at a record low (0.1%). There’s limited room for rates to drop further, so variable rates may not provide significant benefits right now.
However, discounted rates could still be attractive, depending on your deposit, attitude to risk, and circumstances. Always consult an advisor to see what fits your situation.

Q: Should someone break their mortgage for a lower rate?
Ifthi:
It depends. Factors to consider include:
Early repayment charges
Legal or admin fees
Potential savings from a lower rate
A mortgage broker can help determine whether switching is financially beneficial, especially with lenders offering free valuations and solicitor fees.

Conclusion

Gemma:
Thank you, Ifthi, for your advice. Remember, these points may not apply to all borrowers. Always speak to an advisor before making mortgage decisions.

Disclaimer:
A mortgage is secured against your home or property. It may be repossessed if you do not keep up with mortgage repayments.

Gemma:
Thanks for joining us today. We’ll be back next week with another episode of Let’s Talk Money and Mortgages. Have a great day, stay safe, and see you soon!