Overview
Two mortgage deals can have similar starting payments but behave very differently a year later. The distinction is usually in how the rate changes and what it costs to leave.
Comparing a fixed rate with a tracker or discounted variable deal is therefore a decision about uncertainty and flexibility as well as the initial price.
Quick Answer
A fixed rate stays the same for the stated deal period; a tracker follows a specified reference rate; a discount applies a reduction to the lender's variable rate. The contract determines the detail.
None is always cheapest. Compare the total cost and ask whether your budget can manage payment changes, particularly if you are considering a variable rate.
How Each Type Works
| Type | What changes the rate? | Main budgeting question |
|---|---|---|
| Fixed | Normally unchanged during the fixed period | Can you accept the rate and any exit restrictions? |
| Tracker | Movement in its stated reference rate, under the contract | Could you afford an increase? |
| Discount | Changes in the lender's underlying variable rate | How much uncertainty can the household absorb? |
The fixed period is not the mortgage term. A two-year fix can sit within a 30-year repayment mortgage.
Similarly, a tracker may last for a limited deal period or longer. Check what happens after any introductory period rather than comparing only the first payment.
A Simple Rate Illustration
Assume, purely for illustration, a tracker is Bank Rate plus 1 percentage point. If the reference rate were 4%, the mortgage rate would be 5%, subject to any contractual floor or other relevant terms.
A discount deal might instead charge 2 percentage points below a lender's 7% SVR, producing the same 5% starting rate. But if the lender changes its SVR differently from Bank Rate, the two deals can diverge.
A fixed 5% rate would remain at 5% during its fixed period. These numbers demonstrate the mechanisms; they are not available-product quotes or rate predictions.
Payment Certainty Has a Practical Value
A fixed rate can make planning easier where the budget has little spare capacity. It removes one source of payment uncertainty during the deal, although insurance, council tax, service charges and other household costs can still change.
A variable rate can fall, but it can also rise. Decide what payment increase you could absorb from income or a buffer before focusing on possible savings.
Do not choose a tracker solely because someone expects rate cuts. Forecasts are uncertain, and the timing of cuts matters to the total amount paid.
Check Floors, Caps and Reversion Rates
A tracker can contain a minimum rate or collar. A discount can end and leave the mortgage on the full underlying variable rate. A fix can also revert to a follow-on rate.
Read those sections in the illustration and offer. Ask the adviser to translate any term you cannot explain back in ordinary language.
Our SVR guide covers the follow-on stage. The rate after the initial period matters particularly if you might be unable to switch when it ends.
Fees and Exit Terms Can Change the Comparison
An apparently cheaper deal may have a larger product fee. An early repayment charge may apply if you repay, switch or exceed the permitted overpayment amount during the relevant period.
Do not assume every tracker is free of early repayment charges or every fixed mortgage has the same overpayment allowance. These are product terms, not universal features of the product name.
Use our mortgage fees guide and overpayment limits guide to check those details.
If a fee is added to the loan, include the interest charged on it and the resulting balance.
Compare Scenarios Over the Same Period
Ask for a comparison using the same loan, term and repayment type. Then examine a variable-rate scenario where rates stay unchanged, one where they rise and one where they fall.
These are planning scenarios, not forecasts. The useful output is how sensitive your budget and total cost are to the changes.
Include the balance left at the end of the comparison period. Lower monthly payments achieved by extending the term can leave more capital outstanding, so payment alone is an incomplete measure.
Our mortgage cost comparison guide explains the calculation.
Frequently Asked Questions
Explore mortgage guides. Your home may be repossessed if you do not keep up repayments on your mortgage. This is an explanation of product mechanics, not a recommendation.
