The question of whether to take out a two-year fixed rate mortgage or a five-year fix is a common conundrum amongst borrowers. With prices altering in recent times, there’s more to consider. Darren Polson helps a reader pondering this question
The Question
I’ve heard it’s now cheaper to take out a two-year fixed rate rather than fix for five years. Does this mean it’s better to choose a two-year deal?
I am due to remortgage in December but I’m starting to look at new deals now. I am currently on a two-year deal but was hoping to fix for five years whilst interest rates are a little lower.
Now I am wondering if the two-year option might save me money. Please could you advise.
Darren’s Answer
It’s great to be ahead of the game in terms of looking at rates now, even though your mortgage doesn’t expire until December.
Most lenders will allow you to secure a new rate three or four months prior to the expiry date. However, if you are looking to remortgage, this can be done up to six months before.
In early September, Nationwide reported that the average two‑year fixed rate was 4.96%, slightly below the average five‑year fixed rate of 5%.
This is an average and will depend on your loan-to-value as to what rate you can secure.
Deciding between a two-year and a five-year term depends on your future plans and financial situation.
A two-year fixed rate can be positive if you anticipate changes, such as moving home, a significant change in income, or other personal circumstances that might require flexibility.
A five-year fixed rate provides longer term security. This option can be ideal if you plan to stay in your property for an extended period and prefer the peace of mind that comes with knowing your mortgage payments won’t change for five years.
Overall, the stability of a fixed rate can help you manage your finances more effectively and avoid frequent remortgaging. Remember though that committing to a longer fixed term means you might incur early repayment charges if you need to exit the mortgage early due to unforeseen circumstances.
Nobody can be certain when predicting rates due to so many factors influencing the economy, both from within and outside the UK, which makes this a harder decision.
I would recommend speaking to a mortgage broker who can review exactly what rates you qualify for based on your loan-to-value and give you a true comparison. In addition, they can guide you through the process of rate switching or remortgaging. Please see my previous article covering the subject of remortgaging here.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been writing a regular column for What Mortgage for over three years and every week he answers YOUR mortgage questions.
If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.
