Wednesday 25 September 2019

2 year or 5 year fixed term mortgage? Perks and pitfalls

Author: Cambridge Web Marketing

House buyer

No matter whether you are remortgaging or buying your first home, you’ll want to get the most suitable mortgage deal. And that possibly means fixing your interest rate. But how long should you opt for, two years, or five years? We explore, below.

Making your choice

When it comes to deciding whether a two year fixed deal or a five year fixed deal is right for you, there are three key factors to consider: your financial situation, if or when you plan to move, and just how much of an appetite you have for risk.

Two year fixed mortgage – the pros and cons

There are several pros to considering a two-year fixed mortgage deal:

– In around 18 months’ time, you’ll have the flexibility to negotiate another deal.

– Even if you are buying or remortgaging at 90% of loan-to-value ratio (LTV), you’ll enjoy a good introductory rate (as it currently stands, but the market can change).

– There are thousands of products on the market, so there is a wide variety of choice whether you are a first-time buyer or looking to remortgage.

However, there are cons:

– You’ll only be protected from interest rate rises for two years – and so, if mortgages become more expensive in that time, you will be likely to be on a worse deal when it’s ended.

– You’ll need to keep a close eye on interest rates because you could have already missed the boat.

– You’ll need to be on top of your game when your fixed-rate period ends – otherwise you’ll be on the lenders Standard Variable Rate (SVR).

As @thisismoney explains, the gap between two and five year fixed mortgage deals is at its smallest than it ever has been. That means there is little difference between each one, but it may be that one is the better solution for you.

Five year fixed mortgage – the pros and cons

There are many aspects that make fixing your mortgage interest rate for five years an appealing proposition:

– You’ll get rate security for longer, so if the Bank of England base rate goes up, you’ll benefit from a cheaper mortgage for the full five years.

– If you strike when interest rates are good, you’ll have plenty of choices when it comes to products.

– You will not need to think about your mortgage again for a long time.

But there are some downsides too;

– Many of the good deals come with high early repayment charges, as high as 5% if you leave the mortgage in the first year, so if you think you may be moving within the five year fixed deal term, you’ll need to think hard about whether now is the right time to get one.

– They are more expensive than two-year fixed deals, around 0.5% more expensive.

– If mortgage interest rates drop, you’re stuck in the deal for the remainder of the term.

Getting mortgage advice

Getting the right mortgage advice is essential, which is why you should contact us today to make an appointment with our mortgage advisor to discuss the latest mortgages deals.

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Written by: Cambridge Web Marketing