Fixed-Rate Mortgages Explained

A fixed-rate mortgage is a solid choice if you like the idea of knowing exactly what your repayments are going to be every month. Even if you’re already convinced a fixed-rate deal is the route you want to take, there are still a few things to consider before you make any final decisions. 

What Is a Fixed-Rate Mortgage?

A fixed-rate mortgage means your interest rate stays the same for a set period, usually 2, 3, 5, or 10 years. This gives you stability, making it easier to budget. No nasty surprises, no unexpected payment hikes. Fixed-rate mortgages are great if you want peace of mind and protection from rising interest rates.

Choosing Your Fixed-Rate Mortgage Term

Fixed-rate mortgages come with a selection of different terms to choose from, and all offer different benefits, depending on what you feel is most suitable for your circumstances. 

Here’s what you need to know:

2-Year Fixed Rate

• Short-term flexibility. Perfect if you’re planning to move in the next few years or anticipate certain changes to your current financial situation (pay-rise, moving jobs, etc.).

• A shelter during economic uncertainty. If interest rates are behaving erratically, a 2-year fixed-rate deal provides a safe haven for your mortgage repayments.

• Remortgaging opportunities. You can reassess your mortgage options sooner and take advantage of any reduction in interest rates. 

3-Year Fixed Rate

• Good balance of flexibility and security. 3-year terms are an attractive middle ground if you're not ready to commit long-term.

• Protection against rate hikes. If interest rate trends are all pointing up, a 3-year fixed-rate deal ties you to a low rate before any increases start to filter through

• Works for changing circumstances. Ideal if you’re planning any major life changes in the near future.

5-Year Fixed Rate

• More stability. Whatever happens to interest rates, you know your repayments will remain the same for the next five years. 

• Less hassle. No need to worry about having to remortgage or start searching for new mortgage rate deals in the near future. 

• Great for long-term homeowners. Perfect if you're planning to stay put for a while and want peace of mind for your mortgage repayments. 

10-Year Fixed Rate

• Ultimate stability. Your mortgage rate and monthly repayments stay the same for a decade.

• Budgeting with confidence. Ideal if you want complete certainty of what your monthly mortgage repayments will be for the long term.

• Potential downsides. You could end up paying more back in interest overall and incur hefty early repayment charges if you need to switch early.

Fixed-Rate Vs. Variable-Rate

Fixed-rate mortgages keep your interest rate locked for a set period, so your monthly payments stay the same. Variable-rate mortgages, on the other hand, can go up or down depending on the lender’s standard variable rate (SVR) or the Bank of England base rate. 

This means:

• Fixed-rate mortgages – Predictable payments, no surprises, easier to budget.

• Variable-rate mortgages – Could be cheaper during a period of low interest rates, but your repayments can also increase unexpectedly when rates rise. 

What Are the Pros and Cons?

Fixed-rate mortgages give you security, but they’re not necessarily a perfect match for everyone. Here’s the good and the bad:

Why They’re Great

• Know exactly what you’ll pay. Fixed monthly payments make budgeting easier.

• Protection from rising rates. If interest rates increase, you’re safe.

• Peace of mind. No need to stress over any sudden payment increases - it won’t happen during the fixed-rate term.

What to Look Out For

• You might pay more interest overall. Fixed rates can be more costly than variable rates if interest rates are generally higher initially before reducing during the term. 

• High entry and exit fees. Leaving your deal early can be expensive, particularly if it’s very early in the mortgage term. 

• Won’t benefit if rates drop.  If interest rates fall, you won’t see any savings unless you remortgage.

Fixed-Rate Mortgage Arrangement Fees

The upfront or arrangement fee you’ll pay will vary from lender to lender, but it usually ranges from £0 to £1,500. The lowest rates available usually command the highest arrangement fee, so it’s important to consider the upfront costs versus the difference you’ll save by getting a cheaper mortgage rate. 

What Happens at the End of the Fixed-Rate?

When your fixed rate ends, your lender will usually switch you to their standard variable rate (SVR), which is often higher. To avoid overpaying, you should start looking at remortgage options 3-6 months before your deal ends.

This is where using the services of a mortgage broker can really make a difference. They will know which lenders are currently offering the most competitive fixed-rate mortgage deals, saving you a lot of time, stress and, potentially, some money, too.