When choosing a contractor mortgage, one of the most important decisions you’ll make is whether to go with a fixed or variable interest rate. Each has its pros and cons, and the right choice depends on your income stability, financial goals, and risk tolerance.
Here’s a breakdown to help contractors understand both options and choose the one that suits them best.
What Is a Fixed-Rate Mortgage?
A fixed-rate mortgage locks in your interest rate for a set period—typically 2, 3, or 5 years. This means:
Your monthly repayments stay the same during the fixed term
You’re protected from interest rate increases
It’s easier to budget and plan ahead
Best for: Contractors who want stability, especially those early in their contracting career or with long-term financial commitments.
What Is a Variable-Rate Mortgage?
A variable-rate mortgage can change over time, usually based on a lender’s standard variable rate (SVR) or the Bank of England base rate. This means:
Your repayments may go up or down depending on market conditions
You could save money if interest rates fall
There’s less certainty, which could make budgeting trickier
Best for: Experienced contractors with a strong financial cushion who are comfortable with a bit of risk.
Which Is Better for Contractors?
The right choice depends on your circumstances:
| Consideration | Fixed Rate | Variable Rate |
|---|---|---|
| Income Stability | Ideal if income is irregular | Better if income is stable |
| Risk Tolerance | Lower risk | Higher risk |
| Interest Rate Outlook | Good when rates are rising | Good when rates are falling |
| Flexibility Needed | Less flexible (exit fees) | More flexible (easier to switch) |
Tips for Contractors Choosing a Rate
Review your contract terms: Short-term contracts may benefit more from fixed rates.
Consider future plans: Planning to move or remortgage soon? Variable rates may offer more flexibility.
Work with a mortgage broker: They can help assess market trends and match you with the most suitable deal.
Final Thoughts
There’s no one-size-fits-all answer when it comes to mortgage rates. Contractors should weigh their financial situation and future plans carefully. Whether you choose fixed or variable, the key is finding a deal that offers the right balance of security and flexibility.
At Contractor Mortgage Solutions, we guide you through every step and help you make the best choice for your circumstances.