Understanding Mortgage Terms

Fixed Rate Mortgages

A fixed rate mortgage locks in your interest rate for a set period, typically 2, 3, 5, 10, or 15 years. Your monthly payment remains exactly the same throughout the fixed period, regardless of Bank of England rate changes.

How It Works

You pay the same interest rate every month. Once the fixed period ends, your mortgage reverts to the lender's Standard Variable Rate (SVR) unless you remortgage to another deal.

Why Choose Fixed: Perfect for budgeting certainty. If you're on a tight budget or expect rates to rise, a fixed rate protects you from payment shocks.

Variable Rate Mortgages

A variable rate changes with the Bank of England base rate. As base rates go up or down, your interest rate and monthly payment adjust accordingly. The most common variable types are tracker, discounted, and Standard Variable Rate (SVR).

Mortgage Type	How It Works	Best For
Tracker	Follows the Bank of England base rate + lender margin (e.g., base + 1.5%)	Borrowers who expect rates to fall; want transparency
Discounted	Discount off the lender's SVR (e.g., SVR – 1%). Discount periods typically 2–5 years	Short-term savings; often lower early rates than trackers
SVR	Lender's standard variable rate. Can change without notice; typically highest rate available	Short-term bridging; not recommended for long-term borrowing

Tracker Mortgages

Tracker mortgages follow the Bank of England base rate precisely, plus a fixed margin set by your lender. If base rates rise 0.5%, your rate rises exactly 0.5%. This transparency appeals to many borrowers.

Example

Bank of England base rate is 5.0%. Lender margin is 1.5%. Your tracker rate = 6.5%. If base rises to 5.5%, your new rate = 7.0%.

Risk: When rates rise, your monthly payment rises with them. You must be prepared for payment increases if you choose a tracker.

Discounted Mortgages

A discounted mortgage offers a percentage discount off the lender's Standard Variable Rate (SVR) for a fixed period. Once the discount period ends, you revert to the full SVR unless you remortgage.

Example

Lender's SVR is 7.5%. You get a 1.5% discount for 3 years. Your rate = 6.0%. After 3 years, if you don't remortgage, you pay the full 7.5% (or the lender's new SVR at that time).

Advantage: Discounted rates are often lower than tracker rates in the early years. Disadvantage: Less transparency—you don't know exactly what the SVR will be when your discount ends.

Standard Variable Rate (SVR)

The SVR is a lender's default variable rate. It's not tied to the Bank of England base rate and can change at the lender's discretion. SVRs are typically the highest rates available and are rarely a good choice for long-term borrowing.

When Might You Use SVR: Bridge finance, porting a mortgage during home moves, or as a temporary measure. Never stay on SVR by choice long-term—always remortgage before a fixed or discounted period ends.

Choosing the Right Mortgage Type

Your choice depends on your financial situation, risk tolerance, and interest rate outlook:

Fixed Rate Best If:

You want payment certainty, you're on a tight budget, you expect rates to rise, or you have a variable-rate income (self-employed, commission-based). Fixed rates are the most popular choice in 2026.

Tracker Best If:

You expect rates to fall, you want transparency in how your rate changes, and you can afford rate increases. Trackers typically have lower margins than fixed rates.

Discounted Best If:

You're comfortable with rate uncertainty, you plan to remortgage before the discount ends, and the early-year savings are worth the risk.

Key Considerations

Early Repayment Charges: Fixed and discounted rates often carry early repayment charges (typically 1–5% of the outstanding balance) if you pay off the mortgage or remortgage before the period ends. Check before committing.

Remortgage Planning: Start remortgaging conversations 3–4 months before your fixed or discounted period ends. Waiting until the last moment limits your options and could push you onto SVR temporarily.

Cap and Collar Products: Some lenders offer capped variable rates (maximum rate you'll pay) or collared rates (minimum and maximum). These provide more certainty than pure variable but less than fixed.