Start With What You're Actually Choosing Between

When you compare a fixed rate with a variable rate, you aren't simply comparing two percentages. You're deciding who carries the risk if interest rates move — you or the lender. A fixed rate hands that risk to the lender for a set period, and you pay for the certainty. A variable rate keeps you exposed to rate changes, and in return you often get a lower starting rate, more flexibility, or both.

Neither is "better" in the abstract. The right answer depends on your budget, how much headroom you have each month, and how well you'd sleep if your payment jumped by a couple of hundred pounds. Let's work through it properly.

How a Fixed Rate Works in Practice

With a fixed rate, your interest rate is locked for an agreed term — commonly two, five or ten years. Your monthly payment stays exactly the same from the first payment to the last of that period, regardless of what the Bank of England does. When the term ends, you roll onto the lender's standard variable rate unless you remortgage or switch products.

• Predictable budgeting: you know your housing cost for the whole fixed period, which makes planning around other commitments far easier.
• Early repayment charges (ERCs): most fixed deals carry an ERC if you repay the whole mortgage, or sometimes overpay too much, during the fixed term. These often taper — for example, 3% of the balance in year one, 2% in year two.
• Overpayment allowances: typically up to 10% of the outstanding balance each year without penalty, which is generous enough for most people.
• You miss out if rates fall: your payment stays put, even when cheaper deals appear elsewhere.

How Variable Rates Work — and the Three Main Types

Variable rates move when interest rates move. There are three flavours worth knowing, and they behave quite differently.

• Tracker: follows the Bank of England base rate plus a fixed margin. If the base rate rises by 0.25 percentage points, your rate rises by 0.25 percentage points, usually from the next month. Fully transparent, but you feel every change immediately.
• Discounted variable: the lender's standard variable rate minus a discount for a set period. It tracks whatever the lender decides its SVR should be, so your rate can change even if the base rate doesn't.
• Standard variable rate (SVR): the default rate you land on when a deal ends. It's usually the most expensive option, and it's rarely worth staying on voluntarily.

Many variable deals have no ERC at all, which makes them attractive if you plan to overpay aggressively, sell up, or remortgage within a short window.

Match the Deal to Your Budget and Your Nerves

This is where the decision is really made. Take your expected mortgage amount and run a simple stress test. As a rough illustration, a £200,000 repayment mortgage over 25 years at 4.5% costs about £1,112 a month. At 6.5% it's about £1,350. That's nearly £240 extra every month — roughly £2,900 a year.

Ask yourself honestly:

• Could I absorb a rise of one or two percentage points without missing payments or leaning on credit cards?
• Would a higher payment force me to cut essentials, or just trim discretionary spending?
• Is my income stable, or is a career change, parental leave or redundancy on the horizon?
• Would I rather pay a little more now for a payment I can rely on?

If the stress test makes you wince, a fixed rate is probably doing valuable work for you — even if it costs slightly more at the outset. If you have comfortable headroom and a healthy emergency fund, a tracker or discounted deal might save you money and give you freedom to overpay or exit early.

Compare the Whole Cost, Not Just the Headline Rate

The advertised rate is only part of the story. Two deals with identical rates can cost very different amounts once fees are included.

• Arrangement or product fee: often £999 or more, sometimes added to the loan — which means you pay interest on it.
• Valuation and legal fees: some lenders cover these, some don't.
• APRC: the annual percentage rate of charge bundles the rate and fees into one comparable figure. Useful for a quick sanity check.
• ERC structure: how long it applies and how much it costs if life changes.
• Follow-on rate: what you'll pay after the deal ends, in case you can't remortgage in time.

A slightly higher rate with no fee can beat a lower rate with a hefty fee, especially on smaller loans or shorter terms. Ask for the total cost over the deal period, not just the monthly figure.

Practical Steps Before You Decide

• Get an agreement in principle so you know your realistic borrowing figure before comparing products.
• Compare a fixed and a variable option side by side using the same loan amount, term and fees.
• Stress test the variable option at two percentage points higher than today's rate.
• Check the ERC period against how long you genuinely expect to stay in the property.
• Consider speaking to a whole-of-market mortgage broker — they can flag deals and criteria you might not find yourself.

Whichever route you take, review your mortgage a few months before any fixed period or discount ends. Rolling onto an SVR is the most common, and most avoidable, way to lose money on a mortgage.