Mortgage rates explained

Mortgage rates concept. The inscription Fixed and Variable on a notebook in the hands of a man and a miniature house.

Mortgage rates are the percentage of interest charged by lenders when you borrow money to buy a home. They directly affect how much you pay each month and over the lifetime of your mortgage. Understanding how these rates work – and what influences them – can help you make smarter financial decisions and potentially save thousands.

In this guide, we’ll cover:

What mortgage interest is and how it works
Types of mortgage interest rates explained
Comparing mortgage rates
Can you switch mortgage deals early?
How does overpaying affect interest?

Understanding mortgage interest and why it matters

Mortgage interest is the fee that lenders charge you to borrow money to buy a property, displayed as a percentage. It can be added to your monthly repayments or paid separately.

The amount you pay depends on the interest rate, which depends on your mortgage agreement and market conditions. Even small changes in interest rates can make a big difference over time.

Example:

Let’s say you borrow £200,000 over 25 years.

At an interest rate of 5%, your monthly payment is around £1,170.
If the rate drops to 4.5%, your payment falls to about £1,110.

That’s a saving of £60 a month, or £18,000 over the full term.

How lenders decide what to charge

Lenders use the Bank of England base rate as a starting point when deciding how much interest to charge. This base rate affects how much it costs them to borrow money – known as funding costs.

But that’s not the only factor. Lenders also look at what other providers are charging and adjust their rates to stay competitive. On top of that, each lender will calculate the financial risk of borrowing. If a lender is more cautious, they may charge higher rates to protect themselves.

Why base rate changes don’t always mean instant savings

When the Bank of England cuts the base rate, your mortgage payments won’t always go down right away. If you’re on a fixed rate mortgage, your interest rate stays the same – no matter what happens to the base rate.

The main types of mortgage interest rates

Mortgages come in many forms, and each one handles interest a little differently. Let’s look at the most common types of mortgage interest rates in the UK and how they work.

Fixed rate deals and how they work

A fixed rate mortgage has an interest rate that stays the same for a set period. You agree to this period when you take out the deal. It usually lasts between two and five years.

Fixed rate deals give you stability. Your monthly payments stay the same, so it’s easier to plan your budget. But if the Bank of England lowers its base rate, your rate won’t go down. On the other hand, if the base rate goes up, you could end up paying less than you would on a variable rate.

Tracker mortgages explained

Tracker mortgages have a variable interest rate. This means the rate can change during your deal, as it follows the Bank of England’s base rate.

Because the rate can change, your monthly payments can go up or down. Sometimes, you might pay less than people on fixed rate deals. But at other times, you could pay more.

Standard variable rates (SVRs) explained

A standard variable rate (SVR) is a type of mortgage rate set by your lender. They can change it whenever they want, and it’s not directly linked to the Bank of England’s base rate – though that can still have an impact.

Because it’s a variable rate, your monthly payments can go up or down.

Most people move onto an SVR when their fixed or tracker deal ends, before switching to a new one.

SVRs often come with higher interest rates than other mortgage types, so it’s worth keeping an eye on when your deal ends.

What shapes the deal you’re offered?

Several things can influence the mortgage rate a lender gives you:

Credit score. A higher score makes you look like a lower-risk borrower.
Loan-to-Value (LTV) ratio. A bigger deposit means a lower LTV, which reduces risk for the lender.
Income and spending. Lenders check your financial habits to see how stable your finances are.
Job stability. If your employment is steady, lenders might be more confident you’ll keep up with repayments.

Comparing mortgage rates

When looking at mortgage deals, it’s easy to focus on the interest rate – but that’s only part of the picture. The lowest rate doesn’t always mean the cheapest deal overall. Other costs and benefits can make a big difference to what you pay.

Here’s what to look out for:

Product fees. Some mortgages come with upfront charges, like arrangement or booking fees. A low rate with a high fee might cost more overall.
Incentives. Deals may include extras like free valuations or cashback. These can help offset other costs.
Overall cost. The Annual Percentage Rate of Charge (APRC) gives a broader view of what you’ll pay over the life of the mortgage, including fees and possible rate changes.
Flexibility. Some deals allow overpayments or payment holidays, which could save you money or offer peace of mind.

Use our mortgage comparison tool to compare options and find what works best for you.

How often do mortgage rates change and why does it matter?

How often your mortgage rate changes depends on the type of deal you have.

Fixed rate mortgages stay the same until your deal ends. Your payments won’t change during that time.
Variable rate mortgages, like tracker or SVR deals, can change more often. These rates usually follow the Bank of England base rate, which is reviewed every six weeks by the Monetary Policy Committee (MPC).

However, lenders don’t always wait for the base rate to change – they can adjust their rates at any time. That’s why it’s important to understand your mortgage type and keep an eye on rate changes.

What’s the difference between interest rates and APRC

Your interest rate is the yearly cost of borrowing, shown as a percentage. It tells you how much interest you’ll pay each year.

The Annual Percentage Rate of Charge (APRC) includes your interest rate plus any required fees – like valuation or broker costs. It also estimates how your rate might change over the full mortgage term.

Can I switch mortgage deals early?

You can switch mortgage deals before your current one ends. But you might have to pay an Early Repayment Charge (ERC). These charges often apply to fixed rate mortgages or deals with special rates, like tracker or discount mortgages.

If you have a variable rate mortgage, or you're in the last few months of your deal, you might be able to switch without paying a fee.

Thinking about switching? Check your contract first. If ERCs apply, compare the cost of the charge with the savings you'd make by switching. That way, you can decide if it's worth it.

How does overpaying affect interest?

Paying more than your usual monthly mortgage amount can help you save on interest. That’s because it lowers your remaining balance – the amount your interest is based on. A smaller balance means less interest builds up over time.

But watch out for early repayment charges (ERCs). Some mortgage deals charge a fee if you overpay. Before making extra payments, check your mortgage terms to see if any ERCs apply.

Here and ready when you are

Whether you have questions about a specific kind of mortgage or just want to find out more, the expert team are on hand to help.

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Important

Your home may be repossessed if you fail to repay your mortgage. Saga Money may receive payment from Tembo if you get a mortgage offer via the Saga Mortgages service. This will not affect the amount you pay for the service.

Saga is a registered trading name of Saga Personal Finance Limited, which is registered in England and Wales (company number 3023493). Registered office 3 Pancras Square, London, N1C 4AG. Saga Personal Finance Limited is authorised and regulated by the Financial Conduct Authority under the registration number 178922.

Tembo Money Limited (12631312) is a company registered in England and Wales with its registered office at 18 Crucifix Lane, London, SE1 3JW. Tembo is authorised and regulated by the Financial Conduct Authority under the registration number 952652. Tembo Money was awarded Best Mortgage Broker at the British bank awards in 2022, 2023, 2024 and 2025.