How tracker and fixed rate mortgages differ
A fixed rate mortgage locks your interest rate for a set period, usually two to five years. Your monthly payments stay exactly the same whatever the Bank of England base rate does. A tracker mortgage moves in direct response to base rate changes, so your payments can climb or fall.
A fixed rate gives you certainty and makes budgeting simple. A tracker holds out the chance of lower payments if the base rate falls, along with the risk of higher payments if it rises.
Which one wins depends on your own finances and your view of where interest rates go next.
When a tracker mortgage could save you money
Tracker mortgages usually open with lower initial rates than the equivalent fixed rate deals, because you are taking on the risk of rate changes yourself. If the base rate holds steady or falls across your tracker period, you could pay a good deal less than you would on a fixed rate.
Borrowers who picked trackers while rates were falling or flat have often paid less overall than those locked into fixed rates. Past performance is no guarantee of what comes next, though, and base rate moves are genuinely hard to predict.
When a fixed rate offers better value
When the base rate is expected to rise, locking a fixed rate shields you from the climb in costs. Even if the base rate jumps sharply, your payments stay put until your fixed period ends.
A fixed rate tends to suit borrowers on a tight budget who cannot ride out payment swings, as well as first-time buyers who want predictable costs while they find their feet. If you value certainty over the chance of a saving, fixing usually makes sense.
Flexibility and early repayment
Both tracker and fixed rate mortgages may carry early repayment charges during the initial deal period. Lifetime trackers are the exception: many carry no ERCs at all, so you can remortgage whenever you like.
If you think your circumstances might change mid-deal, perhaps you sell up or want to make large overpayments, a tracker with no ERCs, or lower ones, gives you more room to move.
How to decide: speak to an adviser
The right choice depends on where rates are now, your own finances, and how much risk you are happy to carry. An adviser at Clearview Mortgage Solutions can model a few scenarios for you, setting what your payments would look like under various base rate changes against the cost of a fixed rate.
Contact us for a free consultation and we’ll help you reach a decision that fits your circumstances.