Fixed vs Variable Mortgage Rate Calculator

How the calculation works

Fixed or variable mortgage rate: how to compare the real cost

A mortgage rate sets how much the lender charges for borrowing, and the choice between a fixed and a variable rate changes how that cost is spread over the term. A fixed rate keeps the monthly repayment constant for an agreed period. A variable rate moves with a reference rate, usually SONIA or the Bank Rate, so the repayment changes at each adjustment. This calculator compares the two options side by side, showing the monthly repayment and the total interest for each, along with the difference between them. It is built for a repayment mortgage, where each payment covers part of the capital and part of the interest.

The formula behind both options

Both options use the same level-payment method. The monthly repayment is calculated with P = C × [r × (1+r)^n] / [(1+r)^n − 1], where C is the amount borrowed, r is the monthly interest rate (the annual interest rate divided by 1200) and n is the total number of monthly repayments (the term in years multiplied by 12). The method keeps the repayment the same each month while the balance falls, so early payments cover more interest and later payments cover more capital.

The two options differ only in the annual interest rate used. For the fixed option, the rate is the same for the whole term as modelled here. For the variable option, the rate is the reference rate plus the lender's margin. Because the formula is identical, any difference in the results comes from the rate inputs and the term, not from a different calculation method.

The formula has two limits. The term must be at least one month, so n must be 1 or more: with n = 0, the denominator (1+r)^n − 1 becomes zero and the expression is undefined. The amount borrowed must also be above zero, since a loan of nothing has no repayment to calculate. The expression also needs a rate above zero. At a rate of zero, the numerator and the denominator both reach zero, so the repayment is worked out separately as the amount borrowed divided by the number of repayments, with no interest at all. Very low rates also make the results more sensitive to small input changes, so check that the figures match the lender's illustration.

Why total interest matters more than the first payment

Comparing only the first monthly repayment is the most common mistake. The monthly figure shows what happens in one month, while the total interest shows what the borrower pays above the amount borrowed across the whole term. On a repayment mortgage, total interest equals the total of all repayments minus the amount borrowed. A variable rate that looks cheaper at the start can cost more overall if the reference rate rises for several years, and a fixed rate that looks expensive can prove the cheaper choice over a long term.

As modelled here, the fixed option is known in full at the point of offer. For the variable option, the total depends on how the reference rate changes, which nobody can predict. The calculator therefore holds the current reference rate constant until the end of the term. That gives a fixed benchmark rather than a prediction. The result shows what the variable option would cost if rates stayed where they are today, and it should be read alongside a scenario in which rates rise.

Reading term and total interest together

The formula also shows how the term changes the cost. Take an illustrative 4.5% annual rate applied to the same amount borrowed. Over 25 years, that gives 300 monthly repayments and total interest of about 0.67 times the amount borrowed. Stretching the same rate to 30 years gives 360 repayments and total interest of about 0.82 times the amount borrowed. The monthly repayment falls in the longer case, but the total paid to the lender is higher. This is the pattern to look for when the calculator shows the two options side by side: a longer term lowers the monthly figure and raises the total, and the gap between fixed and variable can look different at each length.

These ratios come from the formula itself, not from market data, and they assume the rate stays constant for the whole term. They are a way to test how sensitive a loan is to its structure, not a prediction of the rate a borrower will be offered.

Fixed rate: predictability with a premium

The main advantage of a fixed rate is budget certainty. The monthly repayment does not change during the fixed period, whatever happens to the reference rate, which helps households where a rise would strain the budget. That certainty has a price. When a fixed rate is offered, it often sits above the variable rate available at the same time, because the lender prices in the risk of holding the rate steady for several years. How wide that gap is depends on market conditions and cannot be assumed from one period to the next.

Fixed rates suit borrowers with a tight monthly budget, long terms, or little room to absorb a sharp rise in repayments. In practice a fixed rate usually covers only part of the term. When the fixed period ends, the loan normally reverts to the lender's standard variable rate unless the borrower moves to a new product, so the long-run cost depends on what happens next, not only on the initial rate. This is a simplification the calculator makes when it applies the fixed rate to the whole term.

Variable rate: flexibility with exposure to rate changes

On a variable-rate mortgage, the starting repayment can be lower than the fixed alternative when the reference rate sits below the fixed rate on offer. That monthly saving is real at the start but is not guaranteed. If the reference rate rises, the repayment rises at the next adjustment. Tracker mortgages make the link explicit, because their rate follows Bank Rate plus a set margin, and the contract should state which reference rate applies and how often it changes.

Variable rates also let borrowers benefit from falls in the reference rate without remortgaging. Over a long period of low or falling rates, the variable option can end up with lower total interest than a fixed option. The reverse is equally true. During a period of rising rates the cost can exceed the fixed alternative, and leaving early may trigger an early repayment charge, depending on the contract.

What the calculator leaves out

The calculator is a simplified comparison. It does not include arrangement fees, product fees, valuation fees, legal costs, or the cost of insurance, which may be added to the loan or paid separately. It holds the fixed rate for the whole term and keeps the variable rate at the current reference rate plus margin throughout. It does not model overpayments, offset arrangements or interest-only loans. It also does not reflect the affordability assessment lenders carry out, which usually tests whether a borrower could manage the repayment at a higher rate than the one offered. Lenders often calculate interest daily, so small differences may appear compared with their own illustrations.

Common mistakes when comparing the two options

Several other errors appear often. One is assuming that a fixed rate on offer today will be available on the same terms later. Lenders adjust their fixed rates in line with market conditions, so an offer can change within days. Another is ignoring whether the contract allows the rate type to be switched during the term. Some products allow a switch to another deal with the same lender, sometimes with a fee, while others impose early repayment charges (ERCs) if the loan is repaid or moved before the end of an introductory period. The Key Facts Illustration that lenders must provide, and the mortgage offer itself, set out these conditions, so they should be read before signing.

A third mistake is comparing the headline rate without the full cost. Fees, cashback offers and discounts that depend on a current account or insurance change what a deal really costs. The representative APR shown in lenders' illustrations is a standard way to compare the total cost of different offers, and it includes certain fees, but it rests on assumptions that may not match your own situation. This calculator uses the interest rate alone and leaves out those fees, so it should not be used on its own to rank offers that carry different charges.

When to use this calculator, and when not to

Use this calculator to see the gap between a fixed-rate and a variable-rate option on a repayment mortgage, to test how sensitive the total cost is to the term, and to prepare questions for a lender or adviser. It is most useful once you already have the rates on offer, before an application or before a product transfer.

Do not rely on it for interest-only mortgages, where the repayment structure is different, for offset or flexible mortgages, where the balance can change from day to day, or for loans with stepped or tiered rates. It is also unsuitable for comparing offers from different lenders without adding their fees to the calculation, and it cannot tell you whether a mortgage is affordable in the first place.

Reference rates and the regulatory framework

The reference rates used for variable-rate mortgages in the UK include SONIA, the Sterling Overnight Index Average, which is a daily measure of overnight sterling interest rates, and the Bank Rate, which the Bank of England sets. Lenders publish their own standard variable rates and tracker terms. The Financial Conduct Authority (FCA) regulates mortgage lending and advice in the UK. Its rules, including the Mortgage Conduct of Business sourcebook (MCOB), govern how lenders must present rates, fees and repayment information to borrowers. Anyone advising on a mortgage should be authorised by the FCA, and the FCA Register lists authorised firms and individuals.