Deciding between a two-year and a five-year fixed-rate mortgage is a big choice when you’re remortgaging. With no crystal ball to predict the future, it’s tough to know which term will serve you best. Here’s a simple guide to help you make the right decision.
Understanding Current Rates
As you near the end of your current fixed-rate mortgage, you’ll see that new rates are probably higher than they were a few years ago. For a two-year fix, you might find rates in the region of 4.5% to 5.3%, while five-year fixes are slightly cheaper, in the region of 3.8% to 5%. However, with the Bank of England lowering rates last week and many big lenders battling it out to have the best rates on the market, it is worth checking with a broker what are your best options.
How Term Affects Your Payments
Choosing between a two-year and a five-year term can affect your monthly payments. For example, on a £200,000 loan over 25 years, a two-year fix could cost you £45-65 more per month compared to a five-year fix. This difference varies depending on your loan-to-value ratio.
Expert Insights
Mortgage experts suggest that a longer fix can provide stability during uncertain times and might save you from paying multiple remortgaging fees. On the other hand, a shorter fix offers more flexibility if you anticipate changes or plan to move soon. You might also consider a three-year fix as a middle ground.
Key Considerations
- Future Plans: If you’re likely to move within five years, a shorter-term fix may be preferable to avoid early repayment charges.
- Risk Tolerance: If you prefer certainty, a longer fix might suit you. Conversely, if you’re comfortable with some risk and enjoy finding the best deals, a two-year fix could be the way to go.
When it comes to deciding your remortgaging options, your choice should reflect your financial situation, future plans, and comfort with risk. If you’re unsure, consulting a mortgage advisor can help you navigate these decisions with confidence, but the choice is ultimately yours.