Mortgage deals are advertised by one number, the rate, and it is the number that matters least on its own. Two deals with the same rate can differ by thousands over their term; a deal with a higher rate can be cheaper. The people who understand this are the ones who work in mortgages, and they compare deals in a way that is easy to learn and almost never explained to the customer.
This guide explains the kinds of rate, the trap that catches people at the end of a deal, and the comparison that actually works.
Fixed or variable
A fixed rate stays the same for an agreed period, usually two, three, five or ten years. Your payment does not move whatever happens to interest rates in the wider economy. You are buying certainty, and the price of certainty is usually a slightly higher rate than a variable deal at the moment you take it, plus a penalty for leaving early.
A variable rate moves. A tracker follows a published rate (in the UK, the Bank of England base rate) at a fixed margin above it, so when the base rate moves, your payment moves with it, up or down. A discounted variable is a discount off the lender’s own standard rate, which the lender can change when it likes. Variable deals are often cheaper to start with and often have lower or no early-repayment charges, and they carry the risk that the payment rises.
Neither is right. A fixed rate suits someone for whom a rise in payments would be a genuine problem, or who values knowing the number. A variable rate suits someone with room in the budget who wants flexibility, or who expects to move or repay early. The question is not “which is cheaper?”, because nobody knows what rates will do; it is “which risk can I live with?”.
The trap at the end: the reversion rate
Every fixed or discounted deal ends, and when it does, the mortgage does not end with it. It reverts to the lender’s standard variable rate, which is almost always considerably higher than any deal on the market.
This is the single most expensive mistake in mortgages, and it is made by inattention rather than ignorance. A borrower whose two-year fix ends and who does nothing can find their payment rising by hundreds a month, not because rates moved, but because the deal did. Lenders are not obliged to warn you loudly.
The fix is administrative: know the date the deal ends, and start looking three to six months before it. Most lenders will let you agree a new deal in advance, and switching to another lender is a routine process. The switching calculator on this site includes early-repayment charges, so it can tell you whether it is worth leaving a deal before it ends, not just after.
Fee or rate: the comparison that matters
Here is the part that turns a customer into someone who compares like an adviser.
Many deals come in two versions: a lower rate with an arrangement fee (often a thousand or more), or a higher rate with no fee. Which is cheaper depends entirely on how much you are borrowing and for how long.
On a large mortgage, a small rate reduction saves more than the fee costs, so paying the fee wins. On a small mortgage, the rate reduction saves less than the fee, so the fee-free deal wins. The crossover point is different for every combination, and the advert does not tell you which side of it you are on.
The method: for each deal, work out the total you would pay over the deal period, payments plus fees, and compare those totals. Not the rate. Not the monthly payment. The total. The cost calculator does exactly this, including fees and what happens at reversion, because that is the only comparison that means anything.
What APRC is, and why it is not enough
Lenders must publish an APRC (annual percentage rate of charge): a single figure meant to combine the rate, the fees and the reversion rate over the whole term into one comparable number. It is better than the headline rate, and it is still misleading, because it assumes you stay on the reversion rate for the full term, which nobody sensible does. Two deals with identical APRCs can cost very different amounts over the two or five years you will actually hold them. Use it as a sanity check, not a decision.
Overpaying
Most deals allow you to overpay by a percentage of the balance each year, commonly ten percent, without penalty. Overpaying reduces the balance directly, which reduces the interest charged on every payment afterwards, which is why even modest overpayments shorten a mortgage by years. It is one of the highest-return uses of spare money most people have, because the “return” is the mortgage rate, guaranteed, tax-free. The overpayment calculator shows what a given monthly overpayment does to the term and the total interest.
Two cautions. Check the overpayment limit before paying more than it, because exceeding it triggers the early-repayment charge. And do not overpay a mortgage while holding expensive debt elsewhere; the debt guide covers the order.
Where this fits
Rates are the third of the mortgage guides, after the journey end to end and broker or direct, and before what your solicitor is actually doing. Mortgages and the true cost of owning are Module 8 of our Financial Literacy Course, and the rent-or-buy decision underneath it is Module 9.
Educational guidance, not regulated financial advice. We do not recommend lenders or products, and rates and fees change constantly. Nothing here replaces advice from a regulated mortgage adviser who knows your full circumstances. Your home may be repossessed if you do not keep up repayments on your mortgage.