Mortgage comparison is almost entirely conducted on the interest rate, which is one variable among several that determine what the arrangement actually costs and how much flexibility it leaves.
Fixed against variable
A fixed rate transfers interest rate risk to the lender for the fixed period. A variable rate leaves it with the borrower.
The lender charges for taking that risk, which means fixed rates generally start higher than variable ones under normal conditions.
Which makes the choice a question about certainty rather than about which will cost less, since nobody knows the latter.
The relevant question is whether a rate increase would cause genuine difficulty. If it would, the premium for certainty is buying something real.
Fixed period against term
A distinction that catches people out, particularly in markets where long fixed periods are unusual.
The fixed period may be five years while the loan term is twenty-five.
Which means the rate is fixed for a fraction of the loan, and at the end of it the borrower must remortgage or move to the lender's standard variable rate.
The standard variable rate is typically substantially higher, and the number of people who drift onto it through inertia is large.
Setting a reminder for six months before the fixed period ends is the single highest-value administrative act in the whole arrangement.
Term length
Extending the term reduces the monthly payment and increases the total interest paid, frequently by a very large amount.
Terms have lengthened considerably as prices have risen relative to incomes, which is affordability being managed through duration.
Which works and shifts cost into later years, and increasingly past the borrower's expected retirement.
Lenders have policies on lending into retirement that vary considerably, and this has become a live constraint.
Loan to value
The ratio of the loan to the property value determines pricing, and it does so in bands rather than continuously.
Which means crossing a band threshold produces a step change in the rate available.
A borrower slightly above a threshold can frequently improve their rate meaningfully by contributing a small additional amount, and the arithmetic is worth doing before committing.
The same works in reverse at remortgage, where property value changes move the ratio without any payment being made.
Early repayment charges
Fixed products generally carry a charge for repaying early, since the lender arranged its own funding against the expected duration.
The charge is typically a percentage of the balance, stepping down over the fixed period.
Which matters for anyone who might move, and it interacts with the next point.
Portability
Some products can be transferred to a new property, carrying the rate and avoiding the early repayment charge.
The conditions are specific — the move must generally happen within a window, the new lending must be approved fresh, and additional borrowing takes a separate rate.
Portability is worth real money in a rising rate environment and nothing at all in a falling one, which is why it is rarely emphasised at the point of sale.
Overpayment allowances
Most fixed products permit overpayment up to a percentage of the balance annually without charge.
Which is the mechanism by which a borrower can reduce the balance during a fixed period, and the allowance size varies between lenders considerably.
Offset arrangements, where savings held with the lender reduce the interest-bearing balance, achieve something similar with more flexibility and generally at a rate premium.
Fees
Arrangement fees can be substantial and are frequently addable to the loan, which means they attract interest for the full term.
A lower rate with a large fee and a higher rate with no fee cross over at some balance size.
The comparison figure lenders must publish incorporates fees over the full term, which is useful for products with matching structures and misleading when comparing a short fixed period against a long one.
Working out the total cost over the fixed period, fee included, is more reliable than any single quoted figure.
This is a description of how these products are constructed and is not advice. Mortgage decisions warrant a regulated adviser, and in many markets the advice is available at no direct cost to the borrower.
Affordability assessment
What lenders actually test, which differs from what borrowers assume.
Assessment covers income, committed expenditure and a stress test applying a rate higher than the one being offered.
Which means the loan size is constrained by the stressed payment rather than the actual one, and the stress rate assumption moves with regulatory guidance.
Changes to that assumption alter borrowing capacity across the whole market without any change in interest rates, which is a policy lever that operates quietly.
Product transfers
Worth distinguishing from remortgaging.
A product transfer moves to a new rate with the same lender, generally without a full affordability reassessment or valuation.
A remortgage moves to a new lender and requires both.
Which makes product transfers faster and cheaper, and means the rate on offer is frequently worse than the best available elsewhere, since the lender is pricing against inertia.
Checking both is a half-hour exercise that regularly reveals a meaningful difference.