Fixed vs variable: what is the actual difference?
A fixed-rate mortgage locks your interest rate for a set period (typically 2, 5 or 10 years), so your monthly payment is predictable. A variable mortgage (tracker or standard variable rate) changes with the market — it usually starts lower than a fixed deal, but your payment can rise if rates go up.
This example uses a £240,000 mortgage over 25 years — the mortgage calculator's default. The question is what the rate does over your term.
The numbers: what each rate means
| Rate | Monthly payment | Total interest over 25y | vs 5% fixed |
|---|---|---|---|
| 4.0% | £1,267 | £140,043 | −£136 / month |
| 4.5% | £1,334 | £160,199 | −£69 / month |
| 5.0% (fixed) | £1,403 | £180,905 | baseline |
| 5.5% | £1,474 | £202,143 | +£71 / month |
| 6.0% | £1,546 | £223,897 | +£143 / month |
A variable deal starting at 4.5% would save about £69 a month versus a 5% fixed rate — roughly £20,700 over 25 years if the rate never moved. But if it rises to 6%, you pay about £143 a month more than the fixed deal, or about £17,000 extra interest over a 10-year stretch.
How to choose (a framework, not advice)
- Stability matters most? A fixed rate gives certainty — your payment cannot rise for the term, which helps budgeting. You pay for that in the form of a usually higher starting rate.
- Comfortable with risk? A variable rate often starts lower and can save money if rates stay put or fall — but your budget must absorb rises.
- Interest-rate expectations matter. The choice is essentially a bet on where rates go. Nobody can reliably predict them, so the safer choice is the one your budget can survive if you are wrong.
- Fixed terms vary. A 2-year fix is cheaper to exit later than a 5- or 10-year fix; longer fixes usually carry higher early-repayment charges if you want out.
Many people fix for the certainty, or take a tracker when the gap to fixed rates is unusually wide. There is no universally correct answer — only the one that fits your budget and risk tolerance.
What happens when the fixed term ends?
A fixed rate only protects you for its term — usually 2, 5 or 10 years. When it ends you drop onto your lender's standard variable rate (SVR), which is typically much higher than a new fixed deal, unless you remortgage. The longer the fixed term you choose, the more protection you buy, but the starting rate is usually higher in exchange.
Two costs matter when you switch:
- Arrangement (product) fees — often £0 to £1,500, paid upfront or added to the loan.
- Early repayment charges (ERCs) — typically 1–5% of the loan if you leave a fixed deal before its term ends.
MoneyHelper and the Bank of England both publish guidance on comparing deals and on how base-rate changes feed through to mortgage rates. This calculator assumes the rate stays constant for the whole term and excludes fees — a real comparison should include them.
Risks to keep in mind
These figures assume a constant rate for the whole 25-year term, which is unusual — mortgages are typically re-fixed or revert to a standard variable rate after the initial deal. Remortgaging costs, product fees and early-repayment charges are not included. Rate projections are illustrative, not forecasts.