Fixed Rate vs Tracker Mortgage: What’s the Difference?
Choosing between a fixed rate and a tracker mortgage can have a big impact on your monthly repayments and how predictable your mortgage costs feel. While both can be suitable in different circumstances, they work in very different ways.
What is a fixed rate mortgage?
A fixed rate mortgage keeps your interest rate the same for an agreed period, often two, five or sometimes ten years. During that fixed period, your monthly mortgage repayments will stay the same, regardless of whether wider interest rates rise or fall.
For many homeowners, the biggest benefit is certainty. Knowing what you will pay each month can make budgeting easier and protects you from increases in interest rates during the fixed term.
The trade-off is that if mortgage rates fall, you will not automatically benefit. Fixed mortgage deals can also include early repayment charges if you decide to leave the deal before the fixed period ends.
What is a tracker mortgage?
A tracker mortgage has a variable interest rate that follows, or “tracks”, another rate, usually the Bank of England base rate, plus a set percentage.
This means your monthly repayments can change. If the rate your mortgage tracks falls, your repayments may decrease. If it rises, your repayments can increase.
Tracker mortgages can therefore offer the possibility of lower repayments when rates fall, but they also create less certainty around what your mortgage will cost from month to month.
Fixed rate or tracker mortgage: which is better?
There is no single mortgage type that is right for everyone. A fixed rate may appeal if predictable monthly payments are important to you, while a tracker could be worth considering if you are comfortable with repayments changing and understand the risk of rates rising.
It is also important to compare more than the headline interest rate. Product fees, early repayment charges, your loan-to-value and how long you expect to stay in the property can all affect which mortgage offers better value for you.
Compare your mortgage options with Zest
If you want to see how different interest rates could affect your monthly payments, start with the Zest Money Group mortgage calculator. You can adjust the interest rate, mortgage amount and loan period to get an indication of potential repayments.
Whether you are buying a home or considering remortgaging, Zest Money Group can help you compare the mortgage options available for your circumstances. Our mortgage brokers can explain the differences between fixed and tracker deals and help you decide which approach best fits your plans and budget.
