2-year or 5-year fixed term mortgage: Which one should I choose?

Published under BuyingMortages and Our blog — Jun 2024
2-year or 5-year fixed term mortgage: Which one should I choose?

2-year or 5-year fixed term mortgage: Which one should I choose?

In the current economic climate, one of the most crucial decisions homeowners face is selecting the right mortgage term. This can significantly influence your financial well-being and long-term planning. With the options of a 2 or 5-year fixed mortgage at your disposal, making an informed decision is necessary. Our article offers expert insights to guide you through the pros and cons of each option, helping you secure your financial future with confidence. First time considering a mortgage? Our guide for first-time buyers offers more tried and tested advice on securing your first home.

What are fixed term mortgages?

A fixed-term mortgage is a type of home loan where the interest rate remains the same throughout a predetermined period. Most commonly, this is the first 2 or 5 years of the term (although other periods are often available). This means your monthly mortgage payments are predictable and won't change during the fixed period, making budgeting easier. It contrasts with variable-rate mortgages, where interest rates can fluctuate over time. Fixed-term mortgages are popular because they offer stability and peace of mind, knowing your payment won’t increase if interest rates rise. However, if interest rates fall, you might end up paying more than if you had a variable-rate mortgage.

What is the difference between a 2-year and 5-Yyear fixed term mortgage?

In simple terms, a 2-year fixed-term mortgage and a 5-year fixed-term mortgage are types of mortgages where the interest rate remains constant for their respective durations. One locks you in for 2 years, whilst the other locks you in for 5 years, despite what is happening in the current economy and any rate changes made to the Bank of England's base rate.

Why do 2-year and 5-year fixed mortgages have different interest rates?

2-year and 5-year fixed-term mortgages differ in interest rates due to how they manage risk and market predictions. Until recently, a 5-year fixed-rate mortgage might have had slightly higher interest rates than shorter-term options because it offers protection against interest rate fluctuations for a longer period, providing stability and making budgeting easier. However, this comes with the downside of potentially higher early repayment charges if you decide to switch deals before the term ends. The rates set by lenders also consider factors like the Bank of England base rate, with changes in this base rate affecting the costs for the lender, which in turn are passed on to borrowers through the interest rates offered. Because of changes in these costs more recently and unusually, shorter-term fixed rates like 2-year products have actually been more expensive than longer-term fixed products as economists think it might take a while for the Bank of England to reduce rates significantly.

Is it best to get a 2 or 5 Year fixed mortgage?

Choosing between a 2-year and a 5-year fixed mortgage involves weighing their respective advantages and disadvantages and ensuring you understand what is right for you and your current situation. Here's a breakdown of the pros & cons of both 2-year and 5-year fixed-term mortgages:

Advantages of a 2-year fixed mortgage:

Drawbacks of a 2-year fixed mortgage:

Advantages of a 5-year fixed mortgage:

Drawbacks of a 5-year fixed mortgage:

If you're in the market for a new home and exploring your mortgage options, consider reaching out to our mortgage advice experts . We work in partnership with Capital Private Finance to make the mortgage market easier for you to navigate.

Understanding interest rates in 2024

Over the last year or so, we have experienced higher mortgage rates than we had grown used to over the few years prior. Of course, with interest rates, there are always questions swirling around, "Will mortgage rates go down at any point in 2024 in the UK?" Therefore, it’s crucial to consider and understand current economic indicators and expert forecasts. Keep in consideration the following points:

Interest rate predictions:

Economic indicators to watch:

Global economic factors:

Global events affecting economic stability could lead to fluctuating interest rates. A longer-term fixed mortgage offers a buffer against this volatility.

Personal financial situation:

Market trends and forecasts:

Engage with financial news and expert forecasts regularly to gauge market sentiment toward interest rate movements. We recommend you keep an eye on our Market Insight Reports. Consider the timing of your mortgage decision based on these trends, especially if leaning towards a shorter fixed term.

Advice and consultation:

Professional financial advice is crucial, particularly in interpreting complex economic indicators and their relevance to mortgage rates. A financial adviser can tailor advice to your personal situation, potentially swaying the choice between a 2-year or 5-year fixed mortgage based on current economic forecasts and personal circumstances. We can guide you with the support of our sister company Capital Private Finance .

The 2-year fixed mortgage in more depth:

Considerations:

Strategic approach:

The 5-year fixed mortgage in more depth:

Considerations:

Strategic approach:

Questions to ask yourself:

Are you a landlord seeking to obtain a mortgage for your rental property? Read through our comprehensive guide to discover how we can assist you and make the mortgage landscape easier for landlords to navigate.

Choosing between a 2 or 5-year fixed mortgage is a decision that demands careful consideration. By evaluating your financial situation, consulting expert advice, and considering the current economic trends, you can make a choice that supports your path to financial stability. Have you decided what the right mortgage is for you?

Contact us for more information on securing your dream home: Hamptons Mortgage and Finance .

ALL MORTGAGES ARE SUBJECT TO STATUS AND LENDER CRITERIA. MORTGAGE PRODUCTS CAN BE WITHDRAWN AT ANY TIME.

A FEE WILL BE PAYABLE FOR ARRANGING YOUR MORTGAGE. YOUR CONSULTANT WILL CONFIRM THE AMOUNT BEFORE YOU CHOOSE TO PROCEED.

YOUR HOME OR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. YOU MAY HAVE TO PAY AN EARLY REPAYMENT CHARGE TO YOUR EXISTING LENDER IF YOU RE-MORTGAGE.

Mortgages available through Capital Private Finance. Capital Private Finance is an Appointed Representative of Mortgage Intelligence which is authorised and regulated by the Financial Conduct Authority under number 305330 in respect of mortgage, insurance and consumer credit mediation activities only. Registered Office: Cumbria House, 16-20 Hockliffe Street, Leighton Buzzard, Bedfordshire, LU7 1GN. Registered in England & Wales under number 07552028.

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