Wondering how long to fix your mortgage interest rate for? Read our guide to understand the pros and cons of choosing a five-year rate. Plus, find out how to improve your chances of getting the cheapest mortgage rates.
Wondering how long to fix your mortgage interest rate for? Read our guide to understand the pros and cons of choosing a five-year rate. Plus, find out how to improve your chances of getting the cheapest mortgage rates.
Most mortgages start with a fixed-rate period during which your mortgage interest rate stays the same. This means your monthly payments shouldn’t change for the first five years on a five-year fixed-rate mortgage.
It’s common for a fixed mortgage rate to last two to five years. These days it’s also possible to get a 10-year fixed-rate mortgage — these were rarer for a while after they mostly disappeared during the credit crunch in 2007-2008.
When your fixed rate ends you’ll be put on the lender’s standard variable rate (SVR). A variable rate can go up or down meaning your monthly payments could get bigger or smaller. Rate rises are often caused by inflation which is a general increase in the price of products and services.
To avoid rate rises, consider remortgaging when your fixed rate ends (any earlier and you’ll usually pay a fee). You can search for a new mortgage in minutes with Experian without paying a penny or affecting your score.
Getting a five-year fixed-rate mortgage may give you more certainty and peace of mind. It means your payments won’t change for five years, even if other mortgage rates go up. What’s more, five-year fixed rates are usually cheaper than two-year fixed rates although this isn’t always the case and it could change in the future.
You won’t benefit from interest rate cuts while you’re on a fixed-rate mortgage. If you want to switch your mortgage during the fixed period, you’ll usually pay an early repayment fee of around 1-5% of the amount you still owe — making it harder to take advantage of cheaper rates if they become available.
Getting a five-year mortgage rate is a personal choice. Experts make predictions about how rates will change in the future, but no one can know for sure. Consider how comfortable you are with risk and if you can afford a rate rise if it happens. Also, think about how your life and finances may change in the next five years — such as changing jobs, doing a degree or having children.
It depends on things like your mortgage interest rate, amount and term. Interest is calculated as a percentage of the amount you owe, so a higher rate or bigger mortgage costs more. The mortgage term is how long you have to pay off the mortgage. A longer term means lower monthly payments, but you’ll pay more interest overall. Use our free mortgage calculator to work out the cost of a potential mortgage.
You may be able to save a fair amount of money by securing a lower interest rate for the next five years. Here are some ways to improve your eligibility for the best rates:
Lower your loan-to-value ratio. Your loan-to-value ratio (LTV) is the difference between the value of the house you want to buy and the amount you need to borrow. A lower LTV reduces risk for lenders so they’re more likely to offer you cheaper rates. You may be able to lower your LTV ratio by putting down a bigger deposit or paying down your existing mortgage before switching.
Show proof of a steady income. Mortgage providers like to see evidence of a stable income that can comfortably cover your mortgage payments on top of your usual spending. This could mean being employed full-time or having several years of steady income from sources like self-employment or investments.
Get your credit report in shape. It’s worth understanding how your credit affects mortgage applications. Lenders typically like to see that you’ve made payments on time and in full over the long term. Paying down credit cards and overdrafts can also make your credit report more attractive.
Yes, it’s possible to get a five-year rate on a buy-to-let mortgage that you rent out to tenants. Just be aware that buy-to-let mortgages often require larger deposits and have higher interest rates.
If you think interest rates will fall in the next few years (and you’re comfortable with the risk that they won’t) then you may prefer a two-year fixed-rate mortgage. On the other hand, if you want predictable mortgage payments for longer you could consider a 10-year fixed rate.
Alternatively, there are two types of variable mortgage rates that may be cheaper than your lender’s standard variable rate (SVR). These are:
Discounted variable rate. Some lenders offer a discounted version of their SVR for a specific period of time — typically around two to three years but sometimes longer.
Tracker rates. These are usually a fixed percentage above the base rate, which is what the Bank of England charges other banks and lenders when they borrow. If the base rate changes, your tracker rate will too.
One option is to ask a mortgage broker to help you find and arrange a five-year fixed-rate mortgage. A broker may save you time and offer valuable expertise and connections. But there are downsides — some brokers charge fees, while others get commission meaning they may not have access to the full market.
It’s wise to do your own research before you apply for a mortgage. Compare mortgages from a range of trusted lenders with Experian. Searching is free, won’t impact your score and takes less than two minutes.
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