What is the difference between a fixed-rate mortgage and a variable (tracker) mortgage?

What is the difference between a fixed-rate mortgage and a variable (tracker) mortgage?

• A. Fixed-rate has payments that move with an external rate; variable rate is locked.
• B. Fixed-rate locks interest for a set period but variable rate fluctuates.
• C. Fixed-rate locks interest for a set period; variable trackers move with an external rate and can change payments.
• D. Fixed-rate is only for commercial loans.

Answer: (C)

The main idea is how the interest rate and monthly payments behave over time. A fixed-rate mortgage locks the interest rate for a set period, so the monthly payment stays the same during that period. You gain budget certainty, but after the fixed period ends the rate can change and your payments may adjust. A variable (tracker) mortgage moves with an external rate, typically a reference rate like the Bank of England base rate plus a fixed margin. Because the external rate can rise or fall, payments can go up or down. There’s no guaranteed payment level during the term, which means more budgeting risk but potential savings if rates fall. So the statement that a fixed-rate locks the rate for a set period, while a variable tracker moves with an external rate and can change payments, captures the essential difference between the two.

The main idea is how the interest rate and monthly payments behave over time. A fixed-rate mortgage locks the interest rate for a set period, so the monthly payment stays the same during that period. You gain budget certainty, but after the fixed period ends the rate can change and your payments may adjust.

A variable (tracker) mortgage moves with an external rate, typically a reference rate like the Bank of England base rate plus a fixed margin. Because the external rate can rise or fall, payments can go up or down. There’s no guaranteed payment level during the term, which means more budgeting risk but potential savings if rates fall.

So the statement that a fixed-rate locks the rate for a set period, while a variable tracker moves with an external rate and can change payments, captures the essential difference between the two.