As mortgage rates rise rapidly, this is one of the most common questions that people are currently asking their mortgage brokers.
If you’re currently mortgaging or remortgaging, you’ll likely be deciding whether to fix your mortgage for two or five years, or even longer - at a time when foreseeing the future is particularly difficult. With mortgage rates rising, how do you decide whether fixing your rate for longer is a stroke of genius or false economy?
For those remortgaging, it's a guessing game between whether mortgages will be more or less expensive in two years' time than they are now. It is almost an impossible call to make. With mortgage rates currently continuing to climb, fixing at 5 years might seem like the safest option right now. But what if the mortgage rate drops in the next 2 years and you’re stuck on a higher rate?
Let’s take a look at the pros and cons of a 2 year mortgage term vs a 5 year mortgage term…
2 year fixed mortgages
The benefit of taking out a 2 year fixed mortgage is that in two years' time, fixed rates might be cheaper, and you could benefit from being free to switch to a cheaper rate.
However, the downside right now with the current economic uncertainty, is that it’s a guessing game between whether mortgages will be more or less expensive in two years' time than they are now.
It’s also worth noting that on average, homeowners will now pay more when fixing for two years than they will for five years. But the question is, could the short term pain pay off when they come to remortgage in two years?
5 year fixed mortgages
The benefit of a 5 year fixed mortgage is that it gives security and certainty that the rate won't rise in the near future
However, there is the chance that in two years' time, fixed rates might be cheaper, and you could get stuck on a higher rate for longer.
2 year or 5 year mortgage: how to decide
Sadly no-one has a crystal ball, which means that when choosing two versus five-year fixes, borrowers will only know whether they have made the right decision with the benefit of hindsight. However, there are certain ‘known’ factors that can help borrowers make the decision on what type or length of mortgage product to take.
If you are thinking of taking out a mortgage, or remortgaging, these are the elements to consider that can help to make your decision:
- - Could you afford the rate you’ve been offered for the next 5 years? If so, maybe a 5 year mortgage could be a good option for you.
- - Could there potentially be any personal events in your life which could change your income/outgoings (e.g. having a child or going on maternity leave)?
- - Could there be any changes in your professional life which could impact your income (i.e. is a pay rise or promotion imminent?)
How a mortgage broker can help
At Taylor Made, we understand that it’s a confusing time to be mortgaging or remortgaging and you’ll probably have a lot of questions. That’s where we can help. We are professional independent mortgage brokers and can offer friendly, helpful advice on which mortgage deal would be the best for your circumstances, as well as offering today’s best mortgage rates.
