Housing
Fixing your mortgage rate buys certainty, not a better outcome
Choosing between fixed and variable is usually presented as a forecast. It is better treated as a question about what you could absorb.
Treat the sections below as a sequence. With fixed versus variable mortgages, getting the early decisions right makes the later ones much easier.
Before you start
- Fixed rates typically start higher, and that difference is the price of certainty.
- The decision should follow from your ability to absorb a payment rise.
- Product fees and early repayment charges can outweigh a small rate difference.
What each product does
A fixed rate holds the interest rate constant for a set period, after which the loan usually reverts to a variable rate. A variable rate moves with a reference rate or at the lender's discretion, so the payment can change with little notice. Trackers follow a published rate by a set margin; discounted and standard variable rates can move for reasons the lender determines.
These are different products with different risks, and grouping them as variable obscures that.
The price of certainty
Fixed rates generally price in the market's expectation of future rates plus a margin for the lender taking the risk. That means fixing usually costs slightly more at the outset, and the difference is what you are paying for predictability. Whether you end up ahead depends on what rates actually do, which nobody knows in advance.
Framing the choice as a bet on rates therefore misses the point: you are choosing which risk to hold.
Stress-test before choosing
Calculate the monthly payment at a materially higher rate — several percentage points above your current one — and check whether the household could absorb it. If the answer is no, the case for fixing is strong regardless of any view about the direction of rates. If the answer is comfortably yes, a variable rate becomes a reasonable option and may cost less.
Lenders in many jurisdictions run their own stress tests for exactly this reason, and borrowers should run their own too.
Length of fix is a separate decision
Longer fixes cost more and provide certainty for longer, and they generally carry larger early repayment charges. The right length depends on how long you expect to stay, whether you might need to move, and how much payment stability matters. Fixing for longer than you expect to keep the property can mean paying to exit, which is a real and calculable cost.
Some markets offer portable mortgages that can move with you, subject to conditions worth checking before relying on them.
Fees can reverse the ranking
Product and arrangement fees are commonly a fixed amount, so they matter more on smaller loans than larger ones. A lower rate with a large fee can be worse than a slightly higher rate with none, and the crossover depends on the loan size and the fixed period. Adding the fee to the loan means borrowing it and paying interest on it for the full term unless you overpay it.
Comparing the total cost over the fixed period, including fees, is the calculation that settles it.
This is general information, not advice about your particular position.
The reversion rate is where the profit is
Standard variable rates that loans revert to are typically much higher than the introductory product rate. Lenders rely on a proportion of borrowers staying on that rate through inertia after the fixed period ends.
Diarising the end date six months in advance gives time to arrange a new product without a gap. Mortgage rules, product availability and consumer protections differ by country, and anything material warrants regulated advice.
The takeaway
Work out the payment at a much higher rate first. What you could absorb decides this better than what you predict.
Write the number down before you decide. It usually decides for you.
Questions readers ask
Should I fix for two years or five?
It depends on how long you expect to stay and how much a payment change would hurt. Longer fixes cost more and carry larger exit charges, which is the trade.
What happens when my fixed period ends?
The loan usually reverts to the lender's standard variable rate, which is typically much higher. Start arranging a new product several months before that date.
