A combination of the cost-of-living crisis, inflation hitting a 40-year high and rising interest rates means there is a great deal of financial uncertainty.
It’s no wonder, then, many homeowners are considering locking into longer-term deals like five-year fixed mortgages, in a bid to find some security and financial stability.
What is a five-year fixed mortgage?
With a five-year fixed rate mortgage, you’ll pay the same interest rate on your mortgage for five years. Your monthly payments will not change for the duration of those five years.
You can also get fixed rate mortgages which last for two or 10 years. Five-year deals provide a middle ground between to the two options.
What should I consider when taking out a five-year mortgage?
Interest rates are on the rise. Indeed, following the latest Bank of England rate hike of 0.25%, the base rate has reached 1%. As such some homeowners on their lender’s Standard Variable Rate (SVR) – the rate onto which they default when their deal comes to an end – could potentially see their mortgage bills increase by as much as £1,313,16 annually, according to
For many homeowners, there’s no time like the present to start considering a change and opt for financial stability over the coming years.
However, when considering a fixed mortgage it’s important to take a few things into account before committing to a five-year fix deal:
Length of time could be a problem
Five years is a long time, and this type of mortgage will need to fit your stage of life. Consider whether you’re likely to move within the five-year time frame.
If this is a possibility, then perhaps a five-year fixed mortgage isn’t the right choice for you and you could instead consider a two-year fixed mortgage.
Early Repayment Charges (ERC) apply
It is vital that you check the early repayment charges (ERC) of your mortgage. If you wish to remortgage within five years, or are unable to transfer your mortgage over when you move, you will likely be subject to an Early Repayment Charge (ERC).
This could potentially outweigh the savings you make if you decide to switch mortgages or move house.
Overpayments may be limited
If you plan to make an overpayment to reduce your mortgage, it is important to know that fixed-rate mortgages usually have an annual overpayment limit.
This is typically 10% of your total mortgage balance. But, if you’re on your lender’s standard variable rate (SVR) or on a tracker mortgage, there does not tend to be a limit.
The payments are fixed
On a fixed rate mortgage, you will be locked in to fixed monthly payments based on the interest rate secured when you take it out.
This is an advantage during these times of rising interest rates but, if these interest rates go down again within the five-year term, you may end up paying more.
How to find the best deal on a five-year fixed rate mortgage
If you are seriously considering a five-year fixed mortgage then you should take into account all the fees and expenses that could potentially come with it.
To help keep your monthly mortgage payment cost down it’s a good idea to choose a deal with lower interest rates. One easy way to get access to the lowest interest rates is by putting down a larger deposit.
And while low-interest rates are great, you also need to ensure that you’re aware of any high early repayment fees or setup fees.
These could potentially be thousands of pounds, so it’s important to check with a broker who can help you find a deal that suits you.
This mortgage comparison tool may be able to help way to explore your options and look at their best mortgage rates.
