2 or 5 year fixed mortgage which is better?

Considerations for 2 or 5 year fixed mortgages

There are many considerations when choosing a 2 or 5 years fixed mortgage. Fixed means the mortgage payments are set at the same level. 2 or 5 year fixed mortgage refers to the period you want to set the payments over. Generally, the longer you set the fixed period the higher the mortgage interest rate but this will depend on the economic outlook.

A 2 or 5 year fixed mortgage are products are the most popular for the certainty but other there are variable payment alternatives which may suit you better particularly if you are seeking a product without early repayment charges.

In this article, I touch upon some of the considerations for choosing between 2 or 5 year fixed mortgage. In all instances, you should seek professional help from a Mortgage Broker to make sure you get the most suitable mortgage product for your circumstances.

LIFECYCLE

Why you might want a 2 year fixed?

• First time buyer wanting to keep payments low to adjust to homeownership.
• Your career is expected to have a defined step up in salary, for example, a Trainee Accountant or Solicitor, and once promoted reassess your property options and trade up.
• Work or study means you need to live in a certain part of the country for a period.
• Your business might be newly formed so your mortgage options are limited but in two years’ time the extra track record will open these up for you.
• Living together for the first time.
• You might be on a Visa limiting your product options and expect to get permanent rights to reside by the time the 2 year fixed period is up.
• You may have experienced past credit issues or a criminal record. The two years will make push this problem further behind you and perhaps allow you to remortgage to a better interest rate at this juncture.
• You want to sell the property in the short term.

Why you might want a 5 year fixed?

• You are planning for retirement and want certainty for the last 5 working years so you can direct the monthly surplus into a pension or savings. 
• You are thinking of growing your family with your partner reducing their working hours.
• Your mortgage is a buy-to-let and as a landlord a longer fixed helps you plan better.
• In the back of your mind, you might want to let your residential property in future with the permission of the mortgage lender.
• You are buying under the Right to Buy Scheme and the reclaim on the discount offered finishes as this point so it keeps things tidy for future decisions on the property.
• You are buying under the Help to Buy Scheme and this will finish as this point the Government equity payments kick in so it keeps things tidy for future decisions on the property.

ECONOMY

Why you might want a 2 year fixed?

• You cannot see interest rates in the mid-term so are happy to take a lower 2 year fix and re-fix again.

Why you might want a 5 year fixed?

• You have long term job concerns due to the pandemic or Brexit.

OTHER

Why you might need to take a 5 year fixed.

• The mortgage lender may apply a more generous affordability calculation.
• This may be for a buy-to-let mortgage where a more generous rental calculation is applied.
• The mortgage lender may provide a lower deposit product.
• The set up costs for a mortgage are off putting so you prefer not to pay out too regularly.

CONCLUSION

As you can see the decision to take a 2 or 5 year fixed mortgage can be far-reaching and should not be taken lightly. The wrong choice could lead to spending too much on interest rates or having to pay an early repayment charge. You need to think about your expected life cycle over the 2 or 5 year fixed mortgage, discuss with any co-applicants as their views might be different, friends, parents and of course; a professional Mortgage Broker such as Niche Advice.