Interest Rates: Fixed vs. Variable

Save £5,000 a year by regularly switching Mortgage provider

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Reading Time: 3 mins

So you have a fixed rate mortgage, it’s due to expire, however you don’t have time nor do you see the need to tamper with it.

A fixed interest rate can last for 2,3,5 or 10 years.

What this means is that for however many years the rate you are currently on is fixed for, your monthly payments will remain the same. Once your fixed term has expired, your mortgage switches to something called the variable rate.

The variable rate tends to be 1.5-2.5% higher than the fixed rate and is provided to you on your KFI/Mortgage Illustration document.

For example:

Value of the property
£480,000

Mortgage Balance
£361,935

Current rate with “X” Bank:
A 5 year fixed rate of 1.89% until 31/09/2023

Variable Rate:
4.24% thereafter

Your current monthly mortgage payment is £378.45

Your monthly mortgage payment on the variable rate once your fixed rate has expired is £848.89

That’s £470.44 more per month. That’s double your usual Monthly mortgage payment and then some…

Across 12 months, that’s an extra £5,645.28. By switching Mortgage Provider or going on to a new product with your current mortgage provider, you’d save yourself £5,645.28.

Of course not everyone will save £5,645.28 due to variable payments and Mortgage balances varying per Mortgage Provider. After-all everyones circumstance is different, however one thing you’ll all have in common is the amount of money you could save by switching mortgage products and not staying on the variable rate.

Can I switch rates earlier (every 6 months) and save more money by going on to a lower interest rate elsewhere?

No. If you could, lenders wouldn’t benefit. You are locked in to the rate for 2,3,5 or 10 years. If you break the contract before the rate expires, you will be obliged to pay an ERC – Early Repayment Charge.

ERC’s – another post, another day Due 24th September

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