What is Fixed-Rate Mortgage?

Full Definition

A fixed-rate mortgage charges the same interest rate for an initial deal period -- most commonly two, five or ten years -- regardless of what happens to the Bank of England base rate or wider market rates during that time. Monthly repayments stay identical throughout the fixed period, which makes budgeting predictable and protects the borrower if interest rates rise. The trade-off is that if rates fall, the borrower does not benefit until the fixed deal ends and they remortgage or move to a new rate. Almost all fixed-rate deals carry an Early Repayment Charge if the mortgage is repaid, overpaid beyond an allowed threshold (typically 10% of the balance a year), or switched away from before the end of the fixed term. When a fixed deal ends, unless the borrower actively remortgages or switches product, they usually move onto the lender's standard variable rate (SVR), which is typically higher, so most borrowers shop around a few months before their fix expires.

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