Fixed-rate mortgages

A fixed rate mortgage is a home loan where the interest rate stays the same for an agreed period, so the monthly payment does not change during that time. Changes to the Bank Rate do not affect it. When the fixed period ends, the loan usually moves to the lender's standard variable rate unless the borrower switches.

Fixed rates suit borrowers who want certainty over their payments. The trade-off is that the payment does not fall if rates come down, and leaving the deal early usually costs an early repayment charge. The mortgage term, which usually runs for decades, is separate from the fixed period, which is only the first part of it.

The most common fixed periods are two and five years, with one, three, seven and ten year fixes also offered. A shorter fix gives the chance to move to a new rate sooner, while a longer fix keeps payments steady for longer. Which suits a borrower depends on plans to move, how long certainty matters and the fees involved.

Pricing between two and five year fixes changes with market expectations for interest rates, so either can be priced lower at a given time. A longer fix usually comes with early repayment charges that last for the whole fixed period, which matters for anyone who might move or repay before it ends.

Some lenders offer even longer fixes, and a few let the borrower move or repay without a charge. Current pricing across fixed periods is set out on the residential mortgage rates page, which explains what moves the cost of each type of deal.

A fixed rate is set mainly by the lender's funding costs, which follow swap rates in the money markets, together with the loan-to-value, the length of the fix and the fees. A larger deposit usually brings a lower rate. Lenders reprice fixed deals often, sometimes at short notice, when market rates move up or down.

Fees can change which deal costs less. A lower rate with a high arrangement fee can cost more than a higher rate with no fee, especially on a smaller loan, so comparing the total cost over the fixed period gives the fairest view. Credit history and the type of property can also affect the rates on offer.

When a fixed period ends, the loan usually moves to the lender's standard variable rate, which is often higher than a new fixed deal. Most lenders let existing borrowers choose a new product a few months before the end. Borrowers can also remortgage to another lender, which means a fresh affordability check and valuation.

Switching with the same lender, called a product transfer, usually needs less paperwork than a remortgage. A remortgage can open up more choice, and how it works is set out in the remortgages guide, which covers timing, fees and what lenders check.

Starting the search early gives time to compare offers before the new rate applies. Many lenders let a borrower secure a rate up to six months before the fix ends, and change it if pricing improves before completion.

Most fixed rate mortgages carry an early repayment charge if the loan is repaid, or overpaid beyond a set limit, during the fixed period. The charge is usually a percentage of the amount repaid and often falls each year. Many lenders allow overpayments up to a yearly limit without a charge, set out in the mortgage offer.

Many fixed deals are portable, so the rate can move to a new home, subject to the lender's checks. The early repayment calculator shows how overpaying changes the term and the interest paid.