What is a fixed rate mortgage and how do they work?

A fixed rate mortgage enables you to fix your mortgage at a set interest rate for a specified period.

The main benefit of this type of mortgage is that you’ll know exactly how much your monthly repayments will be for the fixed rate period.

Unlike variable rate or tracker rate mortgages, fixed rate deals aren't tied to the Bank of England base rate. That means no matter what happens to interest rates during your fixed rate period, whether it be 2, 5 or even 10 or more years, your monthly payments will remain the same.

With a fixed rate mortgage, you'll pay the same amount every month for the duration of your fixed rate term. This can be a big help with monthly budgeting as you won’t suddenly see your monthly repayments increase if interest rates rise.

What are the different types of fixed rate mortgage?

There are a wide range of fixed rate mortgage deals to choose from, with terms ranging from 2 up to 10 years, or sometimes longer. The interest rate you’ll pay varies depending on how long you fix your mortgage rate for. As a general rule, the longer you fix for, the higher the rate will be.

2 year fixed rate mortgages

A 2 year fixed rate mortgage is where the interest rate you pay is fixed for two years. As 1-year fixed rate deals are less common, this is likely to be the shortest term your mortgage interest rate can be fixed for. With this type of deal your monthly payments won’t change during the two year period, regardless of whether interest rates rise or fall.

Interest rates on shorter-term fixed rate deals tend to be lower than on long-term fixed rate mortgages, so 2 year deals are often considered to be the cheapest fixed rates available.

They are likely to suit borrowers that only need budgeting certainty for a short period of time. A 2 year mortgage may also appeal to you if you’re planning to move or remortgage in a couple of years. They can, then, be a good solution for homeowners who actively want to ensure they have the cheapest possible repayments and the best deal on the market.

3 year fixed rate mortgages

A 3 fixed rate mortgage is a mortgage deal where the interest rate and your monthly payments are fixed for 3 years. Unlike with a variable mortgage, your payments are set for the next three years, giving you peace of mind when it comes to budgeting.

This type of mortgage can be cheaper than 5 or 10 year deals, so may appeal to you if you’re keen to keep monthly costs to a minimum. If you choose a 3 year deal, rates are likely to be slightly higher than those offered by 2 year mortgages.

After the 3 year fixed rate mortgage period finishes, as with other fixed rate deals, the mortgage will usually revert to the lender’s standard variable rate (SVR), so borrowers may want to start looking around for a better deal shortly before their fixed term ends.

5 year fixed rate mortgages

A 5 year fixed rate mortgage is a mortgage which has a rate that remains the same for 5 years.

When you lock into a 5 year fixed rate mortgage, you have peace of mind that your monthly payments won’t change during this period, regardless of what happens to interest rates.

Rates on 5 year fixed deals tend to be slightly higher than for shorter term fixed rate mortgages, because they provide homeowners with budgeting certainty for a longer period of time.

The best 5 year fixed rate mortgages may come with higher arrangement fees, so it’s important to factor these in when working out the overall cost of any deal.

If you’re planning on moving within the 5 year fixed rate mortgage period, check that any deal you’re considering signing up to is portable and so can be transferred to a new property.

10 year fixed rate mortgages

A 10 year fixed rate mortgage is a mortgage deal where both the interest rate and your monthly payments are fixed for 10 years - no matter what happens to external interest rates during that time.

Longer-term ten-year mortgages tend to be a bit more expensive than 2, 3 or 5-year deals, but you’ll have the knowledge that your payments won’t change for longer. That means they can be suitable for those who are on a tighter budget and require the peace of mind that their mortgage payments won't change for the next decade.

Getting the best 10 year mortgage deal for you will depend on how much flexibility you’re likely to need over the next decade.

Some 10 year fixed mortgages are portable, so you may be able to transfer your deal to a new property if you move home during the policy period. You will have to re-apply for your mortgage however, and your lender will carry out new affordability checks, along with a valuation of the new property.

Bear in mind that many fixed rate mortgages charge a penalty, known as an Early Repayment Charge (ERC) if you pay them off before the end of the fixed rate period. If you’re considering locking into a 10 year fixed rate mortgage, you’ll need to think carefully about whether your circumstances are likely to change over time. Do you intend on making overpayments to clear your mortgage faster, or are you thinking of moving house in the near future?

For mortgage help and information about fixed rate mortgages, or to find the best deal for your individual circumstances, speak to one of our expert mortgage advisers.

What happens when your fixed rate mortgage ends?

At the end of the fixed rate period, you will usually be transferred to the lender's standard mortgage rate, known as the standard variable rate or SVR. This is typically higher than the fixed rate you were paying, so you may decide to lock into another fixed rate deal when your current mortgage rate finishes. Every mortgage lender has a different SVR, which can change by any amount at any time.

It is possible to secure a new deal even if you're currently tied into another mortgage. Many mortgage offers are valid for several months from the date they are issued, so you can go straight from one deal to another if you start the application process before your current deal ends.

Call our expert
advisers now
Call free from mobile or landline
Open 7 days a week