Mortgage Types Explained: Fixed, Variable, Tracker, Offset

When I bought my first property, I sat in a mortgage adviser’s office and nodded along as she listed off terms like tracker, SVR, discounted variable, and offset. I understood about 40% of what she said and picked the option she recommended because it sounded reasonable. Looking back, it was fine. But I got lucky, not informed.

Mortgages are most people’s biggest financial commitment. You will spend 25 to 30 years paying one off, and the type you choose determines how much you pay each month, how much you pay in total, and how much risk you carry. Understanding the differences is not optional if you want to build wealth sensibly.

So let me break down each type in plain English.

Fixed rate mortgage

A fixed rate mortgage locks your interest rate for a set period, typically 2 or 5 years, though 10-year fixes exist. Your monthly payment stays exactly the same for the entire fixed period, regardless of what happens to interest rates in the wider economy.

Typical rates (2026): 3.5% to 4.5% for a 5-year fix, depending on LTV and deposit size.

Pros:

• Complete certainty over your monthly payment
• Easy to budget around
• Protected if interest rates rise

Cons:

• You pay an early repayment charge (ERC) if you leave during the fixed period
• You miss out if rates fall significantly
• When the fix ends, you move to the SVR (which is usually much higher)

Who it suits: Most people. If you want predictability and you sleep better knowing exactly what your mortgage costs each month, a fixed rate is the default choice. Sound familiar? It should. Around 80% of UK mortgage borrowers are on fixed rates.

I always chose fixed rates. The certainty was worth more to me than the possibility of saving a few pounds if rates dropped. When you are building towards financial independence, knowing your exact outgoings each month makes planning so much easier.

Standard Variable Rate (SVR)

The SVR is your lender’s default rate. It is set by the lender, not the Bank of England, and can change at any time. When your fixed deal ends, you automatically move onto the SVR unless you remortgage to a new deal.

Typical rates (2026): 6.5% to 8%, depending on the lender.

Pros:

• No early repayment charges (you can leave whenever you want)
• No fixed period to worry about

Cons:

• Almost always significantly more expensive than other options
• Can change with no notice
• You are essentially overpaying for flexibility you probably don’t need

Who it suits: Almost nobody, long-term. The only people who should be on a SVR are those who are about to sell their property, or those actively in the process of remortgaging and waiting for completion. If you are on a SVR right now and not actively switching, you are likely overpaying by hundreds of pounds a month.

Tracker mortgage

A tracker mortgage follows the Bank of England base rate, plus a fixed margin. For example, “base rate + 0.75%.” If the base rate is 4.5%, your rate is 5.25%. If the base rate drops to 3.5%, your rate drops to 4.25%. It tracks automatically.

Typical rates (2026): Base rate + 0.5% to 1.5%, depending on LTV and term.

Pros:

• Transparent. You always know why your rate is what it is.
• When rates fall, your payments fall immediately
• Often lower starting rate than an equivalent fixed rate

Cons:

• When rates rise, your payments rise immediately
• No upper limit on how high your payments can go (unless the deal includes a “cap”)
• Budgeting is harder because payments can change

Who it suits: People who believe interest rates are heading down, or those with enough financial buffer to absorb payment increases without stress. If you have a solid emergency fund and your mortgage is a relatively small part of your income, the risk of a tracker is manageable and you might pay less over time.

Discount mortgage

A discount mortgage gives you a set discount off the lender’s SVR for a fixed period. For example, “SVR minus 1.5% for 2 years.” If the SVR is 7%, you pay 5.5%.

The key difference between a discount and a tracker is that a discount follows the lender’s SVR, not the Bank of England base rate. Lenders can change their SVR whenever they want, and not necessarily in line with the base rate. This makes discount mortgages less transparent.

Typical rates (2026): Variable. Usually slightly cheaper than the equivalent fixed rate at the start.

Pros:

• Lower initial payments
• You benefit if the SVR drops

Cons:

• The lender can increase the SVR independently of the base rate
• Harder to predict future payments
• Less transparent than a tracker

Who it suits: Honestly, I would steer most people away from discount mortgages. The lack of transparency bothers me. With a tracker, at least you know the formula. With a discount, you are trusting the lender not to increase their SVR unreasonably. That trust has been misplaced before.

Offset mortgage

An offset mortgage links your savings to your mortgage. Instead of earning interest on your savings, you use them to reduce the mortgage balance you pay interest on.

For example: if you have a £200,000 mortgage and £40,000 in a linked savings account, you only pay interest on £160,000. Your savings don’t earn interest, but the interest you avoid on your mortgage is almost always worth more, especially for higher rate taxpayers.

Typical rates (2026): Usually 0.3% to 0.5% higher than an equivalent standard fixed rate.

Pros:

• Tax-efficient. Mortgage interest saved is tax-free. Savings interest is taxable (above your Personal Savings Allowance).
• Your savings are still accessible, you haven’t “spent” them on the mortgage
• Can significantly reduce your total interest bill

Cons:

• Rates are slightly higher than standard mortgages
• Fewer products available (less competition in the market)
• Your savings earn zero interest, which feels psychologically wrong even when it is mathematically right

Who it suits: Higher rate taxpayers with significant savings. If you pay 40% tax on savings interest, offsetting that savings against your mortgage is extremely efficient. It also suits people who want the security of accessible savings while still reducing their mortgage cost.

I looked at offset mortgages but never went with one. My savings were working harder for me in investments, and the mortgage rate difference meant it didn’t quite make sense for my situation. But for someone with £50,000+ sitting in cash savings and a 40% tax rate, the numbers can be compelling.

How to choose

For most people, the decision comes down to this:

1. Want certainty? Fixed rate. Pick 2-year if you think rates will fall soon and want to remortgage sooner. Pick 5-year if you want longer-term stability.
2. Comfortable with risk? Tracker. You might pay less, but you might pay more. Make sure you can handle the worst case.
3. Have large cash savings and pay higher rate tax? Look at offset.
4. On a SVR right now? Remortgage immediately. You are almost certainly overpaying.

Whatever you choose, the worst option is doing nothing and drifting onto the SVR. Every month on that rate is money you could be keeping. Set a reminder, speak to a broker, and make an active choice.

Keep reading

• Remortgaging: When to Switch and How to Save Thousands
• Should You Overpay Your Mortgage or Invest?
• How to Save for Your First Home