Fixed vs. tracker mortgage: how each one actually works

How a fixed-rate mortgage works

A fixed-rate deal sets your interest rate for a defined period – most commonly 2, 5 or 10 years in the UK market – regardless of what happens to the Bank of England base rate or swap rates during that time. Your monthly payment stays identical from the first month to the last month of the fixed term, which makes budgeting straightforward: the number on your mortgage statement doesn't move.

What you give up for that certainty is flexibility if rates fall, and usually an early repayment charge (ERC) if you want to leave the deal before the fixed term ends – commonly a percentage of the outstanding balance, tapering down each year of the fix.

How a tracker mortgage works

A tracker mortgage charges the Bank of England base rate plus a fixed margin set by the lender – for example “base rate + 0.75%”. When the Monetary Policy Committee changes the base rate, your rate and your monthly payment change with it, usually from the next payment date. The margin itself doesn't move; only the base rate component does.

As of September 2026 the Bank of England base rate is 3.75%, held at that level for a fifth consecutive MPC meeting. A tracker at “base + 0.75%” would currently sit at 4.5%; at “base + 1.25%” it would sit at 5.0%. Both examples are shown for illustration only – this article doesn't predict which way the base rate will move next.

What the rate difference does to your payment

The point of this table isn't which rate is “right” – it's how sensitive the monthly payment is to small rate changes. Under half a percentage point of movement, from 4.5% to 5.0%, adds nearly £72 a month on this loan size; a full point adds well over £200. That's the number a tracker exposes you to and a fixed rate protects you from, for the length of the fixed term.

Worked example: five years on each type

Take a £250,000 loan over 25 years. On a 5-year fix at 5.14% (this site's current UK reference rate, as of 10 July 2026), the payment is £1,481.94 every month for 5 years, and the balance after those 5 years is £221,942.09. On a tracker sitting at 4.5% for the same period, the payment is £1,389.58 a month – £92.36 lower – and the balance after 5 years is £219,644.86, slightly lower too because more of each payment goes to principal at the lower rate.

That comparison only holds if the tracker's rate stays at 4.5% throughout the 5 years. If the base rate rises during that period, the tracker's payment rises with it – potentially past the fixed rate's £1,481.94 – while the fixed payment stays exactly where it started regardless of what the base rate does.

No early repayment charge is the other big difference

Most fixed-rate deals carry an early repayment charge if you remortgage, overpay beyond the annual allowance (commonly 10% of the balance a year), or sell the property before the fixed term ends – often a percentage of the balance that steps down year by year. Many tracker mortgages, particularly lifetime trackers without an initial deal period, carry no ERC at all, which matters if your plans include moving house, a large lump-sum overpayment, or refinancing sooner than expected.

• A fixed rate suits a household that wants a known, unchanging payment and isn't expecting to move, overpay heavily, or refinance during the fixed term.
• A tracker suits a borrower comfortable with payment variation, who values the flexibility to overpay or exit without a charge, or who expects to remortgage or sell within a year or two anyway.
• Some lenders offer trackers with a collar (a floor below which the rate won't fall) or a cap (a ceiling above which it won't rise) – always check whether either applies before assuming a tracker is fully open-ended.

What happens when the deal ends

Both fixed and tracker deals have an end date, after which the mortgage reverts automatically to the lender's Standard Variable Rate unless you actively remortgage onto a new deal first. SVRs are typically higher than both fixed and tracker deal rates, so letting a deal lapse without switching is usually the most expensive outcome of the three. Most lenders let you lock in a new fixed rate up to 3 to 6 months before the current deal ends, which is worth diarising well ahead of the date.