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If you are preparing to take out a mortgage or are approaching the end of your existing one, what kind of mortgage are you going to choose? Fixed rate mortgages mean you know exactly what you will pay each month but is a 2-year or 5-year fixed mortgage better? Also, if rates plummet, will you wish you had chosen a tracker mortgage instead?
Today we are focusing on two popular mortgage options: 2 and 5 years. Could one of these be perfect for you?
With a fixed rate mortgage, the interest rate stays the same for the duration of your deal e.g. for 2 or 5 years. This can mean you get a great deal and pay under the odds but, if rates drop, you may overpay.
The main reasons people choose fixed-rate mortgages over tracker are:
There has been a lot in the news recently about inflation and rates, and everything can feel a little uncertain. A 2 or 5 year fixed mortgage offers stability no matter what happens, at least for a few years.
Quite simply, a 2 year fixed-rate mortgage locks your payments to the same interest rate for two years. A 5-year fixed mortgage locks the rate for 5 years.
Lenders carefully look at what is likely to happen to the Base Rate: a rate set by the Monetary Policy Committee to keep inflation low. It determines what we pay to commercial banks and what they in turn charge borrowers.
A few years ago, very low interest rates meant 5-year mortgages generally had higher interest rates than 2-year fixed rate mortgages. However, as rates have risen and lenders predict they will drop again, 2-year deals have become more expensive i.e. your monthly repayments would be higher with a 2-year vs 5-year option.
5 year fixed rates have been cheaper than their 2-year equivalents since the later months of 2022.
| Advantages | Disadvantages |
| Fixed monthly payments allowing for budget planning | Right now, your monthly payments will likely be more than if you chose a 5 year fixed rate |
| Mortgage rates are likely to follow the base rate and fall in the not too distant future i.e. when it is time to get a new deal, you will have good options | You will have to go through the process of choosing a new mortgage deal in just two years |
| You will almost certainly get a better deal than the current tracker options | You will face big fees if you choose to leave your deal early |
| Advantages | Disadvantages |
| Fixed monthly payments allowing for budget planning | If mortgage rates drop you will end up paying over the odds |
| If mortgage rates rise you will be protected from that for the duration of your 5 year contract | You will face big fees if you choose to leave your deal early |
| 5 year fixed mortgages are currently cheaper than 2 |
Mortgage decisions are always tricky as nobody has a crystal ball to tell them what the future holds for rates. At this moment, 5-year deals are better value than 2, but for how long?
Experts predict that Base Rate is nearing its peak and will even out for a while before dropping. This may make another option: tracker mortgages, an appealing prospect. With these deals, the interest rate you pay follows the Base Rate and it rises and/or falls.
If you are looking at your mortgage options, we would strongly recommend talking to an experienced mortgage adviser. It is their business to closely monitor rates and they will be able to offer informed advice based on your circumstances and their market predictions.
Hopefully, this information has answered a few questions you may have had about mortgages, but we are always here to help. As experienced estate agents we have been in the industry for many years and would be happy to signpost you to trusted local mortgage advisers. For all other aspects of your next move, please pop into your local Mortgage Decisions office or give us a call.
Your home may be repossessed if you do not keep up repayments on your mortgage.
There may be a fee for mortgage advice. The actual amount you pay will depend upon your circumstances.
The fee is up to 1% but a typical fee is 0.3% of the amount borrowed.
Toby was absolutely a knight in shining armour. Every step of the way he explained everything, he understood my situation and it felt like he was holding my hand through some turbulent times. I can't thank him enough.
Sarah JThe best mortgage advisors in our opinion. I was kept up in the loop from day one. Extremely friendly and professional service. Thank you once again.
Pawel WBoth Mark and Beccy have been amazing throughout a very erratic and stressful time. They have been professional and attentive, making sure to stay in touch regularly to ensure everything went smoothly. I've been so impressed with their level of detail and service. I would not hesitate to recommend them.
Marie BI would recommend using Mortgage Decisions as they made the process of choosing my first mortgage so easy to understand . They were very knowledgeable on all the products available ,but mostly they were prompt . Thank you in-particular to Toby and Louis.
Lindsay BThis is my first experience with getting a mortgage, but Rob explained everything clearly, answering all my questions, and helped me get the best mortgage for me. Louis also helped by keeping me updated with the progress of the application and chasing the lender on my behalf. Overall, a positive experience.
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