If you need to know precisely how much your mortgage payment will be, we recommend you should take out a fixed-rate mortgage. The longer you settle for, the higher the rate becomes.
If you are looking at finding the cheapest possible fixed-rate mortgage, then a two year fixed rate might be right for you. The payments will be low, but on the downside, two years comes around quickly, and it won’t be long before you have to look for a new deal again. However, if interest rates go up in the meantime, then you may be faced with higher payments at renewal.
If you don’t like the hassle of applying for new mortgages all the time, then a five year fixed rate would be better. Your payments would then be stable for a much more extended period. Five year fixed rates are more expensive than two or 3-year deals. A potential negative would be if interest rates fell during the fixed-rate period, then you would not benefit from a reduction in monthly payments.
While two years and five year fixed rates are the most popular, and you can settle for longer. Some Lenders offer seven or 10-year fixed-rate mortgages.
These long term fixed-rate mortgages have never been massively popular in the UK. Perhaps we feel that much can change in a decade and we don’t want to get hooked into a deal we can’t get escape.
If your circumstances change then, it can cost you money to repay your mortgage early. In any case, an Early Repayment Charge (ERC). The ERC gets calculated as a percentage of what you owe. For example, if you settle a £100,000 mortgage early and the early repayment charge is 2%, then you would incur a £2,000 penalty for breaking the contract.
It’s usually a mistake for the customer to think about “beating the system” or predicting what will happen to interest rates in the future. When selecting how long to fix your mortgage for, focus on your situation. For example:
We strongly recommend you also avoid chasing “headline” deals. The lowest rates often come with high arrangement fees which some customers are keen to avoid.