Fixed vs Variable vs Tracker Mortgages

Fixed rate mortgages

As the interest rate is set, a fixed rate mortgage guarantees you pay the same amount for a predetermined period of time, varying in length from mortgages companies, anything from 1 year upwards may be on offer, depending on the lender.  

With a fixed rate mortgage you’ll know exactly how much your regular payment will be and it will not rise even if interest rates in general rise – however, it also will not fall if it is decreased. 

After your fixed rate period has ended, your interest rate will likely go back to the Standard Variable Rate (SVR). The SVR is the interest rate set by your lender which could rise or fall in line with Bank of England interest rate rises.

Some of these fixed products will have Early Repayment Charges (ERCs) if the mortgage is paid off or a large lump sum payment made, within the fixed rate period.  This is where an adviser’s work is imperative in searching for the right products for your individual mortgage needs.

Once you are out of the initial benefit period, you are free to change your mortgage product, either by completing a product transfer with the same provider, or remortgaging to another lender.  Again, working with a mortgage adviser is vital to find the best and most appropriate deal.

Tracker mortgages

These mortgages track an interest rate, such as the Bank of England base rate. These offer the opportunity for your mortgage payments to fall if interest rates also fall – the lender adjusts your mortgage interest payment to match. Unlike a fixed rate mortgage, your interest will rise and fall in line with this external rate – for a certain period of time. This is usually two, three or five years and varies from lender to lender. 

If the rate drops, your monthly mortgage payments will also drop. You can take advantage of these lower rates by overpaying on your mortgage (although there may be early repayment charges). This can make it quicker to pay off your mortgage and reduce the amount of interest you pay. 

However, if the rate goes up, so will your mortgage payments as you’re not protected by a fixed rate. Again, this is where it’s a good time to consider a remortgage – hopefully a few months before your fixed term ends so you have plenty of time to choose from your options.

Understanding these simple terms will help you better understand and choose from the options presented to you by our team. In order to talk more about your options, we’ll need to know more about you, so contact us today and ask for one of our team to help get you started.

Standard variable rate mortgages

A standard variable rate mortgage, or SVR, is the standard mortgage offered by your chosen lender and it is the type your fixed rate or tracker will automatically convert to when your fixed rate or tracker term is over, unless you remortgage just as the fixed term comes to an end. 

If your mortgage is on the standard variable rate and the interest rate changes, your mortgage payments may also change if your lender chooses to adjust the SVR rate to match, either going up or down depending on the rate.  You are however, able to re-mortgage to a better deal, either with your current lender or perhaps with a completely different lender altogether.

When you’re considering remortgaging to get away from an unfavourable SVR deal, it’s best to contact the experts first. We can look at your circumstances and at hundreds of lenders on the mortgage market, to help determine which is the best deal for you to be on.

Frequently Asked Questions

Depending on the terms of your agreement, your interest rate on the new loan will stay the same, even if interest rates climb to higher levels. On the other hand, if interest rates are on the decline, then it would be better to have a variable rate loan. As interest rates fall, so will the interest rate on your loan

Variable rate mortgage products appeal to some people because the rate is calculated based on prime rate and is typically lower than the fixed rate. Payments are generally fixed over a period of time (e.g. three years). As interest rates go down more of the mortgage payment goes to principal.

At the heart of the ‘should you fix your mortgage’ question is a worry that interest rates will soon be heading higher. … If interest rates go up then so will their monthly mortgage payments. Tracker and variable rate mortgages have interest rates which reference the Bank of England base rate, currently at 0.75%

In general, these new terms tend to affect the interest rate, or increase the amount of the loan, or extend the repayment period. If you want to change your mortgage loan from variable-rate to fixed-rate while staying with the same bank, you will need to request a modification of your mortgage loan.

Variable-rate mortgages typically change in tandem with Bank of England changes to the country’s interest rate, which can happen multiple times a year. Because the country and world economy can fluctuate over time, your variable rate mortgage could go up (several times a year, potentially) as well as go down. By contrast, a fixed-rate mortgages generally stay at the same rate for the first three to five years, and only changes once its term has ended.

By | 2019-09-10T10:59:45+00:00 September 9th, 2019|