When we provide mortgage advice to our clients, we often get asked how long should I fix my mortgage for? This really comes down to the rates available from the lender for two and five year fixed-rate mortgages.
The difference in rates between a two and five year fixed-rate mortgage can vary and this will result in a difference in monthly mortgage payments. Usually, the shorter-term rate will be less and may suit you if you are trying to keep your monthly costs down.
Why fix your mortgage rate?
One the biggest attractions of fixing your mortgage rate is the certainty it provides to your monthly payments and overall finances. The interest rate is fixed for a specific period and will remain at this rate irrespective of any changes that the Bank of England may make.
When you get to the end of your term you will be moved to the lender’s standard variable rate, which will be higher. This is normally the time you would search for another loan and will need to consider product transfer vs re-mortgage.
Currently banks are constantly reacting to the unpredictable environment and the interest rates between two-year and five-year fixed rate mortgages are at the closest levels in recent years.
Many believe there is an argument to go for a three-year fixed-rate mortgage as opposed to a five-year one if you think property prices will rise. When you make repayments on a mortgage you build up equity in the property so in the future you can move to a cheaper deal. Rates get lower as you move down to 90% then 85% loan-to-value. One thing to think about though is the mortgage term – if you have opted for a long term say 40 years, then you won’t have paid much off in those three years.
Should I get a variable rate mortgage?
The alternative to a fixed rate mortgage is to choose a variable rate mortgage. Tracker mortgages are fixed to a set percentage above the Bank of England’s base rate. Consequently, any changes to the Bank of England’s base rate will affect your monthly payments. You will need to be comfortable that you can afford any rise in interest rates during the period of your mortgage.
What should you do?
It is important that you review your current mortgage and ensure that it is the right mortgage for you and your circumstances.
If you would like help in reviewing your current mortgage or are looking to purchase a new home and would like to discuss the options available to you then the Resolve team would be pleased to help you through the process. Please get in touch for a no obligation initial discussion.
Please note: Your home maybe repossessed if you do not keep up repayment on your mortgage.