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Mortgage types explained: fixed, variable, tracker and the interest-only trap
Mortgage types in plain terms: what fixed, variable, tracker and interest-only really mean, who e
A mortgage is not one product but a family of them, and the type you choose determines what your payment does for the next two, five or thirty years. The mechanics are simple; the choice is about how much uncertainty you can carry.
The core split: fixed versus variable
A fixed-rate mortgage locks your interest rate for a set period — two, three, five or ten years is typical. Your payment cannot move during the fixed term, whatever markets do. You pay a small premium for that certainty (the lender prices in its own risk), and you may also pay a fee to leave early. A variable-rate mortgage moves with the lender's rate, which usually tracks the central bank's policy rate — the mechanism the interest-rates explainer unpacks. Payments can fall, which is the appeal, and can rise fast, which is the risk. A tracker is the transparent version of variable: your rate is stated as "central bank rate plus X%", so you always know exactly where you sit.
The trap: interest-only
An interest-only mortgage has the lowest monthly payment of any type, because you pay only the interest — the borrowed amount never shrinks. At the end of the term you still owe the full original sum and must have a separate, funded plan to repay it. For most households this is not a mortgage but a bet on future wealth, and regulators across tier-1 markets treat it as a specialist product for exactly that reason. The honest default for a home you plan to keep is a repayment (amortising) mortgage, where each payment retires a little of the principal — the schedule the amortisation explainer shows line by line.
How to choose, honestly
Three questions decide it. How long will you stay? Short horizon favours a fix that matches it; long horizon means you will re-price eventually anyway. What happens to your budget if rates rise 2%? Do the arithmetic before signing, not after — the payment calculator runs both scenarios in seconds. How much certainty is your sleep worth? That is not a soft question; a mortgage you panic out of costs more than a slightly dearer one you keep. And whatever the type, compare the full cost — rate plus fees plus exit costs — which is the subject of the fees explainer.
The honest summary: fixed buys certainty at a price, variable buys possibility at a risk, trackers sell transparency, and interest-only sells an illusion unless you have a funded exit plan. Most first-time buyers are best served by a repayment mortgage, fixed for a term matching their expected stay — boring, legible, and survivable in any rate weather.
Sources and further reading
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