Whether you’re a first-time buyer, home mover or are remortgaging, you will find benefits and drawbacks to getting a fixed-rate mortgage versus a variable-rate deal – however, many mortgages offer a taste of both.
These so-called 'hybrid' mortgages start off with a fixed-rate period, then switch to a discounted variable rate for a set timeframe afterwards.
So, are there benefits to this type of mortgage? Or would you be best opting for an easy fixed-rate or discount deal instead?
Which? explains the ins and outs of hybrid mortgages, and how these kinds of deal measure up.
What is really a hybrid mortgage deal?
A hybrid mortgage combines a fixed-rate period having a discount period.
With a typical two-year fixed-rate mortgage, for example, you'd lock your interest rate in for 2 yrs. Next, you'd generally start make payment on lender's standard variable rate (SVR) before you either remortgage or remove the loan.
With a hybrid deal, you would in addition have a two-year fixed-rate period – but would then shift to a discounted rate (set at a percentage below the SVR) for a further period, often 3 years. Once that would you move to the SVR.
These loans remain unusual, creating just 4% of the total market. Six providers currently offer these (links get you to the overview of each provider):
You will discover how these lenders compare within our full overview of the best and worst mortgage brokers.
Best rates on hybrid mortgages
To find the lowest-rate deals that combine fixed rates having a discount period, Which? Money analysed a large number of deals on Moneyfacts.
We looked at two-year fixed-rate deals available at a 90% loan-to-value ratio, meaning first-time buyers will have to put down a first deposit of 10%.
The cheapest deal comes from Yorkshire Building Society, which offers single.79% initial rate, fixed for two years. Afterwards, you have to pay 4.25% for any further 3 years (a 0.74% discount around the SVR). The overall APRC is 4.2%.
Accord Mortgages, meanwhile, provides a 1.97% initial rate for two years, accompanied by a 4.25% discounted rate for 3 years. The APRC is 4.5%.
You can see the best-rate deal from each provider for a two-year fixed-rate mortgage at 90% LTV below:
|Provider||Initial rate (2 yrs)||Revert rate (3 years)||APRC||Fees|
|Yorkshire Building Society||1.79%||4.25% (discount of 0.74%)||4.2%||lb1,495|
|Accord Mortgages||1.97%||4.25% (discount of 0.74%)||4.5%||lb995|
|Skipton Building Society||2.09%||3.99% (discount of 1%)||4.5%||lb995|
|Chelsea Building Society||2.11%||4.25% (discount 0.74%)||4.3%||lb495|
|Newcastle Building Society||2.28%||4.49% (discount of just one.5%)||5.1%||lb498|
|Hinckley & Rugby Building Society||2.39%||4.49% (discount of just one.65%)||5.1%||lb999|
|Leeds Building Society||2.44%||4.69% (discount of 1%)||5%||lb999|
How do these mortgage rates compare?
If you are looking to buy a home, you may be best choosing a typical two-year fixed-rate product instead.
Not only are many from the initial rates cheaper, but the SVRs offered by larger banks and building societies are usually less than even the discounted rates provided by their smaller rivals.
So, for example, in a 90% LTV, you could take out a two-year fixed interest rate deal from Barclays just 1.44%, which reverts to 4.24% – underneath the discounted rate offered by Yorkshire Building Society. The overall APRC is really a comparable 4.2%.
Indeed, the existing borrower rates provided by Newcastle Building Society, Leeds Building Society and Hinckley & Rugby have been in the underside quarter of mortgage brokers. So even a discount may make your rate higher than you would pay on other providers’ SVRs.
If you go searching for a fixed-rate deal, you'll only have one rate change over the course of a five-year period, not two. So you won't notice a shock whenever your discount period ends and your monthly payments suddenly jump up.
Then again, a hybrid deal may allow you to put off remortgaging (switching to a different deal) for five years, instead of doing the work after two, because you will still pay under the SVR after your fixed term expires.
What kind of mortgage deal suits me?
Understanding the different types of mortgages could be tricky, but it’s worth getting your head round the benefits and drawbacks of each prior to applying for financing.
Keep in your mind that both fixed-rate and variable-rate deals tend to be offered for particular periods of time, usually two or 5 years. After this, you’ll usually spend the money for lender’s standard variable rate (unless you opt for one of the hybrid products).
Pros: Your rate of interest will remain the same for any specified time, protecting you against unexpected increases. You can plan for your monthly repayments in advance, safe in the knowledge they’re unlikely to alter.
Cons: If you want to repay before the end from the term – for instance, because you’re selling up – you may face an earlier repayment charge, which could be hefty. These kinds of deals may also be more costly than variable-rate products.
There are a number of kinds of variable rate deals including tracker mortgages, set at the Bank of England base rate plus a certain amount, and discount deals that offer a percentage off the lender’s SVR.
Pros: You’ll benefit if interest rates drop. You might pay lower interest than with a fixed-rate deal (though not always). These deals are usually flexible, meaning you may not have to pay an earlier repayment charge if you move house and exit the mortgage early.
Cons: Your interest rate could increase at any time, which means you could find your monthly payments jump up unexpectedly. This might allow it to be challenging budget into the future, and could strain your household finances.
Get expert advice
If you’re confused about your options, or else you want to save time through getting an expert to recommend the best mortgage for you personally, it’s worth talking with a specialist mortgage broker.