What is a fixed rate mortgage?

What is a fixed rate mortgage?

A fixed rate mortgage is where your repayments are set for a specific amount of time. This can be for as little as two years, up to 25 years or more. This means your monthly payments won’t change during that time, making it easier to budget.

With a fixed rate deal you’ll always know what you need to pay each month during the fixed interest period. Compared to variable or tracker rate mortgages, where your payments can change based on the Bank of England's base rate, your payments won’t change no matter what happens to interest rates.

How does a fixed rate mortgage work?

With a fixed rate mortgage, you’ll have a specific interest rate that you will be charged every month for as long as your mortgage term lasts. This means your mortgage repayments will stay the same every month.

What happens at the end of a fixed rate mortgage?

When your fixed rate mortgage ends, you’ll usually move onto your lender’s standard variable rate (SVR). This interest rate is almost always higher than your previous fixed rate. To avoid this, you can start looking for a new mortgage deal around 4 – 6 months  before your fixed term ends.

However, most fixed rate deals come with an Early Repayment Charge (ERC). This means that if you want to leave the deal early, they’ll charge you a fee. This is normally between 1% and 5% of the remaining loan amount but it can also be a fixed fee, so you should factor this in if you end up moving house or changing your mortgage sooner than planned.

Fixed vs variable rate mortgages

Fixed rate

Your payments stay the same for a set period.

Variable rate

Your payments can change, depending on interest rates.

Variable rate mortgages are often linked to the Bank of England base rate. If the base rate goes up, then you’ll pay more. If the base rate goes down, your payments could get cheaper.

Common fixed rate mortgage lengths

2 year fixed rate mortgages

A 2 year deal is where your interest rate and monthly payments stay the same for two years. This gives you a bit of breathing space, as you’ll know exactly how much you’re paying each month, even if interest rates change during that time. It’s a popular option if you’re buying your first home or want short-term stability while keeping your future plans flexible.

The main thing to keep in mind is that when the two years end, you’ll usually be moved onto your lender’s standard variable rate (SVR), which is often higher. To avoid paying more, most people look for a new deal before the fixed term finishes. If you want to switch or repay your mortgage before the two years are up, you’ll could end up having to pay an early repayment charge.

3 year fixed rate mortgages

A 3 year deal means your interest rate and monthly payments stay the same for three years.

Once your mortgage starts, you’ll pay the same amount every month for three years. After that, unless you remortgage, your lender will usually move you onto their standard variable rate, which can go up or down. This often means higher payments, so it’s worth planning to look for a new deal before the three years are up.

Compared to other fixed-rate options, a 3 year fix is usually cheaper than a 5 or 10 year fix, but a bit more expensive than a 2 year one. So, it can be a nice middle ground if you’re not sure what’s coming up in the next few years or don’t want to commit for too long.

5 year fixed rate mortgages

A 5 year fixed rate is a deal where your interest rate and monthly repayments stay the same for five years. Because you’re tied in for five years, it’s worth thinking about whether this fits in with your future plans. If you decide to move or change your mortgage during the fixed period, you’ll probably need to pay an early repayment charge, which can be quite costly.

When the five years are up, you’ll usually move onto your lender’s standard variable rate (SVR), which is often higher than your fixed rate. To avoid paying more, it’s a good idea to start looking for a new deal before the fixed term ends.

Some people prefer a 2 year fix if they think their situation might change sooner. But if you want to lock in your payments for a longer stretch and avoid frequent remortgaging, a 5 year fix could be the better option.

10 year fixed rate mortgages

10 year deals mean your monthly payments stay the same for a full decade, no matter what happens to interest rates. This can give you peace of mind and make it easier to plan ahead, especially if you're settled and don't want to remortgage every few years

Because the deal lasts for ten years, you’ll need to be confident you’ll stay in your home or keep the mortgage for that long. If you want to leave the mortgage early likely face an early repayment charge, which can be expensive.

When the ten years are up, your lender will normally move you onto their standard variable rate (SVR), which is often higher than your fixed rate. To avoid paying more than you need to, it’s a good idea to start looking for a new deal before your fixed term ends.

Advantages and disadvantages of a longer term fixed rate deal

Advantages

• Peace of mind for longer
• Payments won’t change
• No need to remortgage soon
• Easier to budget
• Often portable if you move

Disadvantages

• You’re tied in for longer
• You won’t benefit if rates fall
• Early repayment charges  apply if you leave early
• Extra borrowing could be more expensive
• You’ll need to meet the lenders criteria again if porting

Fixed rate mortgage process

Many fixed rate mortgages are portable, so if you move, you might be able to take your deal with you. However, this will depend on the specific mortgage deal. Your L&C mortgage adviser can help you find the right deal for you.

Fixed rate mortgage eligibility criteria

To get the best fixed rate mortgage, you’ll need to prove you can afford the repayments. Lenders will usually want to see:

• Proof of income (usually 3 to 6 months of payslips)
• Bank statements
• Details of any debts or credit agreement
• Whether you can afford the payments long-term

Fixed rate FAQs

Should you get a fixed rate mortgage?

If you want the peace of mind of knowing exactly what you’ll pay each month, a fixed rate mortgage could be a good option. It’s also a popular choice if you’re worried about interest rates rising.

What happens when your fixed rate deal ends?

Once your fixed term finishes, you’ll usually move onto your lender’s standard variable rate (SVR), which is likely to be higher. To avoid paying more than you need to, it’s a good idea to look for a new deal before your current one ends.

Can you leave a fixed rate deal early?

Yes, but you’ll usually have to pay an Early Repayment Charge. This can be quite expensive, so it’s worth checking the small print before you sign up.

Can you move house during a fixed rate?

Yes, but it might come with early repayment charges. Some fixed rate mortgages are portable, which means you might be able to move the deal to your new home. You’ll need to speak to your lender and meet their usual checks.

Can you remortgage on a fixed rate mortgage?

If you want to remortgage before your fixed rate mortgage deals ends, you’ll likely face an ERC. However, you can start looking for your next deal up to six months before your fixed rate ends. This means you can move straight onto a new deal and avoid the SVR.