Fixed vs Floating Mortgage Rates

Fixed or floating is one of the first real decisions every borrower faces, and it comes up again every time a fixed term ends. There is no single right answer that applies to everyone, but there is a genuinely useful way to think about it.

What a fixed rate actually gives you

A fixed rate locks in your interest rate, and therefore your repayment amount, for a set period, commonly anywhere from six months out to five years. The main thing you are buying with a fixed rate is certainty. Your repayments will not change during that term regardless of what happens in the wider interest rate environment, which makes budgeting considerably simpler.

The tradeoff is flexibility. Fixed loans generally restrict how much extra you can repay each year without incurring a fee, and if you want to exit the loan or switch lenders before the fixed term ends, you may face a break fee, which can be significant depending on how rates have moved since you fixed.

What a floating rate actually gives you

A floating, or variable, rate moves in line with the market, which means your repayments can rise or fall over time. In exchange for taking on that uncertainty, floating loans typically offer far more flexibility. You can usually make extra repayments or pay the loan off entirely at any time without penalty, which makes floating a natural fit for money you expect to want quick access to or move around.

Advantages and disadvantages of each

Fixed gives you certainty and protection if rates rise, but costs you flexibility and can mean missing out if rates fall during your term. Floating gives you flexibility and the ability to benefit if rates drop, but exposes you to higher repayments if rates rise, and generally sits at a different rate to fixed at any given time, sometimes higher, sometimes lower, depending on market conditions.

Neither is inherently better. The right choice depends on your tolerance for repayment changes, how much flexibility you actually need, and what you expect to happen with rates and with your own circumstances over the period in question.

A genuinely useful way to think about your own tolerance is to ask yourself how you would actually feel, practically, if your repayment increased by a meaningful amount within the next year. If that would cause real financial strain, fixed likely suits you better, since certainty has real value beyond the numbers alone. If you have enough buffer that a change in repayment would be an inconvenience rather than a genuine problem, floating or a shorter fixed term becomes a more reasonable option to consider.

Splitting your mortgage

Rather than treating this as an all or nothing decision, many borrowers split their loan between fixed and floating portions. A common approach is fixing the majority of the loan for certainty while keeping a smaller portion floating for flexibility, such as extra repayments, an upcoming expense, or simply as a buffer. Splitting can also mean fixing different portions for different terms, so your entire loan does not come up for renewal at the same time, which spreads out your interest rate risk rather than betting everything on a single term.

The right split is genuinely personal. Someone with stable income and few upcoming expenses might comfortably fix a larger portion, while someone expecting a lump sum, a career change, or a big purchase in the near future might deliberately keep more floating for the flexibility. This is one of the more valuable conversations to have properly rather than defaulting to whatever split your bank suggests without much discussion.

Loan structures worth knowing

Beyond the basic fixed and floating choice, structures like revolving credit and offset facilities let you use floating portions of your loan more actively, effectively reducing the interest you pay by offsetting your loan balance against money sitting in linked accounts. These are not right for everyone, since they require a degree of financial discipline to actually benefit from, but for the right borrower they can meaningfully reduce total interest paid over the life of the loan.

An offset structure works by linking one or more everyday accounts to your mortgage. Rather than earning interest on the money sitting in those accounts, the balance is used to reduce the amount of your loan that interest is calculated on. If you keep a reasonably healthy balance in your everyday accounts, this can meaningfully reduce interest without you having to actively do anything beyond banking normally. Revolving credit works a little differently, functioning more like a large overdraft against your home, where your income goes in and expenses come out, with interest calculated daily on the reducing balance. Both can be genuinely effective, but both also make it easier to drift rather than actively pay down debt if you are not disciplined about it, which is why I only recommend them to clients who have a clear sense of their own spending habits.

What happens if you do nothing when your term ends

If your fixed term expires and you have not actively refixed or made a decision, most lenders will automatically roll you onto a floating rate, or sometimes a default fixed rate, which is very rarely the most competitive option available to you. This is one of the more quietly expensive mistakes I see, since it can sit unnoticed for months, with the borrower paying meaningfully more interest than necessary simply because nobody proactively made a decision at the right time.

Setting a reminder ahead of your fixed term expiry, or working with an adviser who tracks this for you, is a simple habit that avoids this entirely.

Refix strategy

When your fixed term is coming up for renewal, you generally have a window before the expiry date where you can lock in a new rate ahead of time, sometimes without being charged a break fee since you are refixing rather than exiting early. This is worth actively managing rather than letting it happen automatically, since simply accepting whatever your current lender rolls you onto is rarely your best available option.

My approach with clients approaching a refix is to compare what is actually available across lenders, not just your current bank's offer, and to reconsider the term itself rather than automatically repeating whatever term you were previously on.

Questions to ask before refixing

• What terms are actually available to me right now, and how do they compare across different lenders, not just my current one?
• Does my situation or upcoming plans suggest I might want more flexibility, meaning a shorter term or a floating portion, or more certainty, meaning a longer fixed term?
• Is my current loan structure still the right fit, or has enough changed that a restructure alongside the refix makes sense?
• Am I comparing the true cost, not just the headline rate, including any cashback or incentives on offer for switching versus staying?

Frequently asked questions