Fixed or tracker remortgage: what is the difference?

A fixed rate remortgage keeps your interest rate, and therefore your monthly payment, the same for a set period, commonly two, three or five years. A tracker remortgage moves up or down in line with a reference rate, usually the Bank of England base rate plus a set margin, so your payment can change during the deal.

How a fixed rate remortgage works

With a fixed rate, you know exactly what your monthly payment will be for the length of the fix, regardless of what happens to wider interest rates. This certainty can make budgeting easier, particularly if your income is already stretched or if you are still working out how a past credit issue has affected your finances. Fixed deals usually carry an early repayment charge if you leave before the end of the fixed period, which is worth checking against your circumstances. Our guide on early repayment charges explains how these typically work.

How a tracker remortgage works

A tracker follows a reference rate, most commonly the Bank of England base rate, plus a set margin the lender adds on top. If the base rate rises, your payment usually rises too, and if it falls, your payment can fall. Some trackers include a “collar”, a level below which the rate will not fall further, so it is worth checking the specific terms rather than assuming the rate can fall indefinitely.

Comparing the two

How does the choice interact with affordability?

Lenders stress test both types of deal, checking whether you could still afford the mortgage at a higher hypothetical rate. Our guide on what a mortgage stress test is explains this in more detail, but broadly a tracker is often stress tested more cautiously because the payment itself can move, while some lenders apply a smaller margin to longer fixed deals since the rate cannot change during the fixed period. This can affect how much you are offered as much as which product you prefer.

Does bad credit affect the choice?

Having a CCJ, default, or other adverse credit does not change how fixed and tracker rates themselves work, but it can affect which lenders will offer you a mortgage at all, and not every specialist lender offers the same spread of products as the mainstream market. Some lenders working with adverse credit focus mainly on fixed rate deals, on the basis that a stable payment can suit someone rebuilding their credit history. Our page on remortgaging with a low credit score explains more about how this part of the market works, and our guide to how lenders assess affordability covers the wider assessment either type of deal goes through.

What this means for a bad credit remortgage

If you are remortgaging with something on your credit file, a fixed rate can offer useful certainty while you are also managing a credit issue, since you will know your payment will not move even if wider rates do. A tracker is not automatically wrong, but it adds a variable on top of a situation that may already feel uncertain. If you are also consolidating other debts into the remortgage, our guide on debt consolidation remortgages explains the risks of securing those debts against your home, which is worth weighing up alongside the rate type.

A worked illustrative example

These figures are for illustration only. Suppose two homeowners each borrow the same amount over the same term, one on a fixed rate and one on a tracker. If the reference rate the tracker follows were to rise during the deal, the tracker borrower’s payment would rise with it, while the fixed rate borrower’s payment would stay exactly the same until their fix ends. If the reference rate instead fell, the tracker borrower’s payment could fall, while the fixed rate borrower would still be paying the rate they locked in, potentially more than the tracker borrower at that point. Neither outcome is certain in advance, which is the basic trade-off: a fixed rate exchanges the chance of a lower payment for certainty, while a tracker exchanges certainty for the chance of paying less, alongside the risk of paying more.

Common mistakes when choosing between fixed and tracker

• Choosing based only on the headline rate. The rate on offer today does not tell you what either option will cost over the whole deal. Comparing the stressed payment and the early repayment charge terms matters as much as the rate itself.
• Not checking the early repayment charge before switching later. Leaving a fixed deal early, for example to remortgage again if your circumstances or credit history improve, can trigger a charge. Read early repayment charges explained before assuming you can move freely.
• Assuming every specialist lender offers both types. Some lenders working with adverse credit only offer fixed rate products. If a tracker is important to you, check availability with an adviser before ruling other lenders in or out.
• Overlooking a tracker’s collar. Some trackers will not fall below a set floor rate even if the reference rate drops further, which changes the potential benefit of choosing a tracker.
• Ignoring how the choice affects the stress test. Because trackers and fixed deals can be stress tested differently, the type of deal you choose can itself change the maximum amount a lender is willing to offer, separately from your credit history.

Getting advice on the right fit

Neither option is inherently better, and the right choice depends on your own attitude to risk, how long you plan to stay in the property, and what is actually available to you given your credit history. An adviser who works with adverse credit cases can compare fixed and tracker options across the lenders likely to consider your application, rather than assuming the wider market’s usual choices apply.