Choosing a mortgage involves a lot of important decisions. One of the biggest revolves  around the interest rate you pay on the money you borrow. Will it stay the same for a set period or could it change month by month? This fundamental choice between a fixed or variable mortgage significantly impacts your monthly payments, budget stability and overall peace of mind. It can feel like a complex decision especially with interest rates often in the news. This guide aims to simplify things explaining the key differences between fixed and variable rate mortgages, outlining the pros and cons of each and helping you think about which might be the best fit for your circumstances as a UK homebuyer in 2025.

 

 

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What is a fixed-rate mortgage?

As we’ve covered in more detail elsewhere a fixed-rate mortgage means your interest rate is locked in and won’t change for an agreed initial period. In the UK this is typically two, three, five or even 10 years. This guarantees your monthly mortgage payments will remain exactly the same throughout that fixed term, making it easier to budget and plan.

What is a variable-rate mortgage?

A variable-rate mortgage is one where the interest rate can fluctuate during the mortgage term. As a result, monthly payments can go up or down.

There are several types of variable rates including:

  • Tracker mortgages
    With these mortgages, the rate directly follows (or “tracks”) an external base rate, usually the Bank of England Base Rate plus a set percentage.
  • Discounted rate mortgages
    Here you get a discount off the lender’s own Standard Variable Rate (SVR) for a set period. So if the SVR changes, so does your discounted rate.
  • Standard variable rate (SVR)
    This is the lender’s default rate which mortgages often revert to after an initial fixed or variable deal ends. Lenders can change their SVR at their discretion though changes often follow Base Rate movements.

Fixed or Variable Mortgages: The key differences

Understanding the core distinctions between fixed or variable mortgages helps clarify the choice you have:

  • Interest rates stay the same during the initial deal with Fixed Mortgages but can change over time with Variable Mortgages.
  • Monthly Payments remain predictable and stable with Fixed Mortgages but can increase or decrease with Variable Mortgages.
  • With Fixed Mortgages you remain protected from rate rises but miss potential drops. In contrast, with Variable Mortgages, you benefit from rate drops but remain exposed to potential rises.
  • It is simpler and easier to plan with Fixed Mortgages whereas, Variable Mortgages require more financial flexibility, making it potentially harder to budget.

Fixed or variable mortgage: Pros and cons

Let’s quickly recap the main points for fixing your rate vs opting for a variable option.

For Fixed-Rate Mortgages

Pros

  • Budget certainty
  • Protection against rising interest rates
  • Peace of mind
  • Easier financial planning.

Cons

  • You won’t benefit if market rates fall
  • Could potentially have a slightly higher starting rate than some variable deals
  • Early Repayment Charges (ERCs) can restrict flexibility.

For Variable Mortgages

Pros

  • Potential for lower payments if interest rates fall
  • Initial rates might sometimes be lower than fixed rates
  • Some deals may offer more flexibility regarding ERCs (but always check).

Cons

  • Monthly payments can increase sometimes significantly making budgeting harder
  • Exposure to interest rate rises can cause financial stress if rates climb steeply.

Fixed or Variable Mortgage: Which is right for you?

Deciding between a fixed or variable mortgage depends heavily on several, often personal, choices. These include  your individual financial circumstances, attitude towards risk and financial outlook.

When making the decision, consider these factors:

Your budget

If you need absolute certainty about your largest monthly outgoing or have limited room for payment increases, a fixed rate offers essential security. If you have more flexibility and could comfortably afford higher payments a variable rate might be an option.

Your risk tolerance

Are you comfortable with the possibility of your payments increasing in exchange for the potential to save if rates drop? Or do you prefer the safety of knowing exactly what you’ll pay even if it means potentially missing out on rate cuts?

Interest Rate expectations

While predicting interest rates is notoriously difficult, if the general expectation is for rates to rise significantly fixing might seem more appealing. Conversely if rates are expected to fall a variable rate could save you money but this is never guaranteed. It’s critical to remember that even experts often get interest rate forecasts wrong so trying to predict the market is extremely challenging.

Your own future plans

How long do you plan to stay in the property? If you might move or remortgage within a few years be very wary of ERCs on longer-term fixed rates. A shorter fix or certain variable deals might offer more flexibility but always check the specific terms.

Given the financial significance and the complexity especially in uncertain economic times getting professional mortgage advice is highly recommended.

OneDome is here to help

Choosing a mortgage is complex but OneDome is here to help. If you have any questions about whether to opt for a Fixed or Variable Mortgage, the wider mortgage process or want tailored advice on the different types of mortgages that suit your situation speak to our friendly mortgage advisors today or call us on 01489555080 or explore our comprehensive mortgage guide for a more in-depth breakdown.

Important: Your home may be repossessed if you do not keep up repayments on your mortgage.