Five year fixed rate mortgages are popular with borrowers keen to know exactly how much their monthly repayments will be for the next five years.
This means that even if interest rates increase your monthly repayments will remain the same. Knowing exactly how much you'll be paying every month can make it much easier to budget and manage your finances; including working out how much money you will have left over for luxuries such as holidays.
Choosing 5 year mortgage rates also means not having to worry about rising interest rates pushing up your monthly repayments.
Once you reach the end of a five year fixed rate mortgage term, your mortgage rate and payments are no longer fixed at the same level.
Unless you switch to a new fixed rate, discounted rate or tracker mortgage, you will usually be moved on to your mortgage lender's SVR, or Standard Variable Rate. This could be higher or lower than the rate you paid during your fixed period.
However, SVRs are rarely the most competitive rates available, which is why it’s a good idea to shop around for a cheap mortgage deal when you come to the end of your five year term.
Five year fixed rate mortgages generally come with slightly higher interest rates and fees than shorter term fixed mortgages or tracker deals that follow the Bank of England base rate up and down. This is because you’re paying for the security of knowing your mortgage rate will not change for the next five years.
However, if interest rates go down during the five year term of your fixed rate mortgage, you could end up paying well over the odds. And to switch to a cheaper deal, you’ll usually have to pay a hefty Early Repayment Charge (ERC) that will more than wipe out any savings you could make by switching.
If you think there’s a good chance of interest rates falling in the next five years, you may therefore be better off with a two year fixed rate deal.
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