What is a fixed rate mortgage and is a two- or five-year option better? Darren Polson advises a reader who isn’t sure of the best deal for their particular circumstances
The Question
We have £18,000 left on our mortgage and we are due for renewal very soon. We think a two-year fixed rate may be too short and would mean we’d need to remortgage again.
However, a five-year fixed rate would be too long, and we are a worried we would be faced with early repayment charges. Are there any other solutions for us?
Darren’s Answer
Choosing the rate period for your mortgage is an important decision.
A fixed-rate mortgage provides stability by locking in your interest rate for a set period, ensuring that your monthly payments remain constant regardless of rate changes.
This can be particularly beneficial for budgeting and financial planning. However, you need to be sure how long you want to fix for.
The decision between a two-year and a five-year fixed-rate mortgage depends on your future plans and financial situation.
A two-year fixed rate offers more flexibility, making it easier to switch products or lenders after a relatively short period. This can be positive if you anticipate changes, such as moving home, a significant change in income, or other personal circumstances that might require flexibility.
However, the downside is that you might face more frequent remortgaging costs and potential exposure to higher interest rates in the future.
On the other hand, 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.
This stability can help you manage your finances more effectively and avoid frequent remortgaging. However, 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.
Please note there are options such as porting your existing deal which may avoid an early repayment charge.
I would advise you to speak to a broker who can give you the best rates on the market for your circumstances.
Meet our expert…
Darren Polson is head of mortgage operations at Aberdein Considine. He has been a regular columnist for what MORTGAGE for over three years and is here to answer your questions.
If you have a question for Darren please email kate.saines@emap.com or leave a message in the comments below.
