Fixed vs Tracker vs Discount Mortgages: Complete Guide 2026

The Three Main Mortgage Types in 2026

When you apply for a mortgage, lenders will typically offer you one of three types: a fixed rate, a tracker, or a discount mortgage. Each works differently, carries different risks, and suits different borrowers. Understanding the difference is crucial before you commit to 25 years of payments.

In 2026, approximately 85% of UK mortgages are fixed-rate. But that doesn't mean it's the right choice for everyone. Let's break down each type.

Fixed-Rate Mortgages: How They Work

With a fixed-rate mortgage, your interest rate stays the same for a set period, typically 2, 3, 5, 10, or 15 years. During that period, your monthly payment never changes, regardless of what happens to broader interest rates in the economy.

Example of a Fixed Rate

You borrow £200,000 on a 5-year fixed rate at 4.5%. For the next five years, your interest rate remains 4.5%, and your monthly payment stays at approximately £1,009 per month. If interest rates rise to 6% during that period, your payment doesn't change. If they fall to 3%, your payment still doesn't change.

What Happens at the End of the Fixed Period?

When your fixed-rate term ends, you have three options:

• Remortgage: Move to a new fixed rate (or other product) with a new lender or your current lender
• Switch to a different product: Move to a tracker or discount mortgage instead
• Do nothing: Fall onto your lender's Standard Variable Rate (SVR), which is expensive and should be avoided

Advantages of Fixed Rates

• Certainty: Your payment is guaranteed not to change, making budgeting straightforward
• Protection: If interest rates rise significantly, you're protected
• Popularity: Most lenders offer competitive rates on fixed mortgages, so you have choice
• Peace of mind: Many people value the psychological security of a fixed payment

Disadvantages of Fixed Rates

• Early repayment penalties: If you want to pay off the mortgage early or switch products, you face penalties (usually 3 to 6% of balance)
• Higher initial rates: Lenders charge more for the certainty they're offering you
• Remortgaging hassle: You must actively remortgage at the end of the fixed term
• Missed savings: If interest rates fall sharply, you're locked in at a higher rate

Tracker Mortgages: How They Work

A tracker mortgage means your interest rate is set at a fixed margin (or "spread") above the Bank of England base rate. If the base rate changes, your rate changes automatically, usually within 30 days.

Example of a Tracker

You take out a tracker mortgage at "BOE base rate plus 2.5%". When the base rate is 4.25%, your interest rate is 6.75%. If the Bank of England raises the base rate to 5.25%, your rate instantly becomes 7.75%.

The Duration of a Tracker

Some trackers last for the entire life of your mortgage (called a "lifetime tracker"). Others track for a set period (2, 5, or 10 years) and then convert to a different product. The lifetime trackers are increasingly rare but extremely valuable if rates eventually fall.

Advantages of Trackers

• Lower initial rates: Because the lender isn't fixing the rate, they offer lower margins
• No remortgaging required: If it's a lifetime tracker, you may never need to remortgage
• Shared risk: The benefit of falling rates directly benefits you
• Transparency: The formula is simple and clear, base rate plus the margin

Disadvantages of Trackers

• Payment uncertainty: Your monthly payment changes when the base rate changes
• Budget risk: If rates rise quickly, your payments can become unaffordable
• Limited availability: Fewer lenders offer trackers now; choice is limited
• Interest rate risk: You're exposed to whatever the Bank of England decides to do

Discount Mortgages: How They Work

A discount mortgage is set at a discount below the lender's Standard Variable Rate (SVR). If the lender's SVR is 6.5% and you're offered 1% discount, your rate is 5.5%.

Example of a Discount Mortgage

Your lender's SVR is 6.0%. You're offered a 1.5% discount, bringing your rate to 4.5%. If the lender raises their SVR to 7.0% in response to a Bank of England rate rise, your rate becomes 5.5%.

Duration and Remortgaging

Discounts are typically available for 2, 3, or 5 years, after which you usually move to the lender's SVR unless you remortgage. This is where discount mortgages become problematic, when the discount period ends, your rate can spike significantly.

Advantages of Discounts

• Lower starting rates: Discounts are often lower than fixed rates during promotional periods
• Some flexibility: You're not locked in to a specific rate, so some lenders allow earlier redemptions with reduced penalties
• Lender loyalty: Staying with your current lender at the end is often cheaper than switching

Disadvantages of Discounts

• Uncertainty: Your payment changes when the lender changes their SVR
• SVR spike risk: When the discount ends, the SVR is often significantly higher than fixed or tracker rates elsewhere
• Tied to lender's SVR: You have no control over the underlying rate, the lender sets it
• Easy to forget: Many people don't remortgage when the discount ends and end up on expensive SVR
• Limited availability: Like trackers, fewer lenders offer discounts now

Side-by-Side Comparison: Fixed vs Tracker vs Discount

Scenario Comparison: What Actually Happens?

To illustrate the real-world impact, here's what each mortgage type would cost in three different interest rate scenarios:

Assumptions: £200,000 mortgage over 36 years. Fixed at 4.5%, Tracker at base + 2.5% (base currently 5.0%, so 7.5%), Discount at SVR minus 1.5% (SVR currently 6.0%, so 4.5%).

This table shows why many people prefer fixed rates for budget certainty, but also why trackers can offer dramatic savings if interest rates fall significantly.

Understanding Early Repayment Penalties

This is crucial if you think you might want to move house, remortgage, or pay off your mortgage early.

Fixed Rates

Fixed-rate mortgages almost always have Early Repayment Charges (ERCs). These are typically charged as a percentage of the amount you're repaying, often 3 to 6% of the outstanding balance. On a £200,000 mortgage, a 5% penalty is £10,000. These penalties apply for the entire duration of the fixed-rate term.

Trackers

Most tracker mortgages have no early repayment penalties, or only very small ones. This is one of their advantages, you can move house or remortgage without a large exit cost.

Discounts

Discount mortgages often have small or no penalties during the discount period, but beware of penalties that apply after the discount ends and you're on SVR.

What About Interest-Only Mortgages?

Interest-only mortgages (where you pay only the interest, not the capital) are less common now, but they can be fixed, tracked, or discounted. The same principles apply to the interest rate type, the difference is simply in what you're paying interest on.

Interest-only mortgages are typically available to buy-to-let investors or experienced borrowers with a clear repayment strategy. Most residential first-time buyers will be on a repayment mortgage (where you pay both interest and capital).

Which Type Suits You?

The best choice depends on your personal situation:

Choose Fixed Rate If:

• You value payment certainty above all else
• You plan to stay in the property for the full fixed term (or longer)
• You're first-time buyer who wants to avoid surprises
• You're concerned about rising interest rates
• You have a tight budget with little wiggle room

Choose Tracker If:

• You're comfortable with payment changes
• You have a good financial buffer if rates rise
• You're confident rates will fall in the medium term
• You might want to move or remortgage without penalties
• You can find a lifetime tracker (increasingly rare)

Avoid Discount If:

• You're a first-time buyer, the SVR spike at the end is a real risk
• You won't remember to remortgage in 5 years (most people don't)
• You're not comfortable with the uncertainty that comes when the discount ends

Remortgaging: The Critical Skill

Whether you choose fixed, tracker, or discount, you'll likely need to remortgage when the initial term ends. This involves:

1. About 4 to 6 months before the end of your current term, contact lenders to see what rates they'll offer
2. Compare rates and products (fixed, tracker, discount, etc.)
3. Apply with your preferred lender (it can be the same lender or a different one)
4. Go through another affordability check and valuation
5. Accept the new mortgage offer and switch

The good news: remortgaging is now quick and straightforward, and you can often switch lenders without leaving your current bank.

Key Takeaways

• Fixed rates are most common (85% of market) and suit borrowers who want budget certainty
• Trackers offer potential savings if rates fall, but payment uncertainty
• Discounts are attractive short-term but dangerous long-term (SVR spike risk)
• Understand early repayment penalties before committing, they can be expensive
• Whatever you choose, plan to remortgage 4 to 6 months before the term ends
• Your first mortgage doesn't have to be your last, you can switch products at the next remortgage