If you’re anything like me, you get great peace of mind from knowing exactly what’s going out of your account every month. This is why I am a big fan of fixed-rate mortgages. It enables you to budget adequately and takes away the anxiety of worrying about potential interest rate rises. Let’s be honest, we have NO idea what is going to happen in the future, With Brexit and Government being so ‘up in the air’ right now, fixing your mortgage rate over a certain timeframe just makes financial sense.
The big question is, how long should you fix it for?
Here is my pro’s and con’s guide to deciding on whether a two-year or five-year fixed term is better for you:
Two – year fixed rate
The Pros –
- There are literally thousands of two-year fixed rate products on the market giving you plenty of choices.
- Whether you’re buying or remortgaging you could get a fantastic introductory rate of below 2%
- You’ll have the flexibility to negotiate another deal after 18 months
- If there is any chance you could be moving home in the near future, a two-year fixed-rate mortgage gives you a bit more flexibility and you can plan to avoid any early repayment charges.
The Cons –
- You’ll need to be hot of the mark to avoid being passed onto the lender’s standard variable rate (SVR) after two years which could be considerably more expensive. *As a client of the mortgage mom I will look after this for you, so you are never at risk – wink wink*
- If mortgages become more expensive over the two years you could struggle to switch to an equivalent deal.
Five – year fixed rate:
The Pros –
- With a five-year fixed-rate mortgage, you will be protected from any increases in the Bank of England base rates for half a decade!
- Lenders are constantly fighting to top the charts when it comes to rates so at the moment these are exceptionally good.
- If you are certain you have plans to move over the next 5 years this gives you budgeting peace of mind without the worry of early repayment charges.
- A longer fixed period means you can avoid potential arrangement fees that you may have to pay if you switch deals at the end of a two-year fixed mortgage.
The Cons –
- Five-year deals are roughly around 0.4% – 0.5% more expensive than equivalent two-year products.
- Many of the best deals come with very high early repayment charges (ERC’s) so if there is even the slightest possibility that you may want to move in the next 5 years, consider a shorter-term or find a deal with no ERC’s
- If mortgage rates drop, you’ll be stuck paying the rate you fixed at for 5 years.
If you would like to find out more about mortgages and are seeking advice, get in touch with us today.