Fixed vs variable rate mortgages: what’s the difference?

Choosing a mortgage can feel overwhelming. One of your biggest decisions can be whether to go with a fixed or a variable interest rate. The two most common types of interest affect how much you pay each month. In this guide, we’ll break down what each one means in a way that’s easy to understand — even if you’re just learning about mortgages for the first time.

What is a fixed rate?

A fixed interest rate stays the same for a set period — usually 2, 3, or 5 years. During that time, your monthly payments won’t change. No matter what happens in the wider economy, your interest rate is locked in.

Why some people like fixed rates

Fixed interest rates offer stability. You know exactly what you’re going to pay every month. That makes budgeting a lot easier, especially for families. Even if interest rates go up, your payments won’t change.

When fixed interest might not be the best

The downside of fixed rates is that you can miss out on savings if interest rates go down. You keep paying the same, even if others start paying less. Also, leaving a fixed rate early might cost you money — something called an early repayment charge.

Choosing between 2, 3, and 5-year fixed rates

The best fixed rate length depends on your plans and how stable you want your payments to be. A 2-year fixed rate is best for people who want short-term commitment and flexibility. It’s ideal if you think interest rates might fall soon or if you expect to move or refinance soon. The downside is that you’ll need to remortgage more often, which could mean extra fees and effort.

A 3-year fixed rate offers a middle ground. It provides a bit more stability than a 2-year deal but still allows you some flexibility if you're unsure about long-term plans. It can be a great option if you want predictable payments for a little longer but might still want to make changes within a few years.

A 5-year fixed rate is best for long-term planners who value consistency and peace of mind. If you believe rates will rise or you want to budget over the long term without surprises, a 5-year deal might suit you best. However, it comes with less flexibility if you want to change your mortgage early.

For added freedom, Central Trust also offers a 5-year fixed rate product with no ERCs. This can be perfect for first-time buyers who might move, investors who may sell, or homeowners who want both stability and the ability to exit without penalty.

What is a variable rate?

A variable interest rate means your payments can go up or down. It changes based on things like the Bank of England base rate or your lender’s costs. At Central Trust, the variable lending rate is based on how much it costs us to borrow money and run our business.

Variable interest rates often start lower than fixed ones, which can be good if you want lower payments now. However, you have to be ready for changes in your payment.

How does a variable rate mortgage work?

With a variable rate mortgage, your interest can change over time. That means your monthly payment might go up or down. If rates go up, you’ll pay more. If rates go down, you could pay less.

Why choose a variable mortgage loan?

Some people choose a variable mortgage loan because it can offer savings if interest rates go down. Others are drawn to the initially lower monthly payments compared to fixed-rate options.

However, it’s important to understand that your payments can go up if rates rise. And while variable rates often start lower, that’s not always the case—so make sure you’re comfortable with potential changes over time.

Fixed interest vs variable interest: main differences

With fixed interest, you get stability. With variable interest, you get flexibility and a chance to save if rates go down. The big question is: do you want peace of mind or a chance to save? To learn more, read our guide on mortgage interest rates.

Which one helps with budgeting?

Fixed interest is great for budgeting. You know your payment won’t change. That helps families stay on track. Variable interest can make budgeting tricky because you don’t always know how much you’ll owe.

Which one could save you money?

If interest rates fall, a variable rate could save you money. But if rates go up, it could cost you more than a fixed rate would.

Conclusion

There’s no one-size-fits-all answer. Ask yourself: Do I need predictable payments? Am I planning to move soon? Do I think rates will go up or down?

Then speak to a mortgage adviser to help you decide. Fixed or variable, the right choice is the one that fits your life best.

At Central Trust, we offer both fixed rates and variable rates. If you're considering a secured loan, speak with a qualified advisor. Contact us free of charge at 0800 980 6273, or complete our enquiry form, and we will return your call at a convenient time.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON YOUR HOME, THE LENDER MAY REPOSSESS IT.