Should I Choose a 2-Year or 5-Year Fixed Mortgage Rate?

Choosing the right mortgage term can make a huge difference to your finances. With interest rates frequently changing, it’s not always clear whether a 2 year or 5 year fixed mortgage is the right choice.

But a fixed-rate mortgage isn’t always about the numbers on a page. Your future plans – whether moving home, remortgaging, or keeping monthly costs predictable – should be central to deciding which mortgage term is the best fit.

All of which asks the question: Should I fix my mortgage for 2 or 5 years?”

In this article, we explore all the pros and cons of a 2-year fixed mortgage compared with a 5-year fixed mortgage. We’ll look at how current and future interest rates could influence your decision and how a trusted mortgage broker can help you secure the deal that’s right for you. Let’s begin.

What Is a Fixed-Rate Mortgage in the UK?

A fixed-rate mortgage in the UK is a type of home loan where your interest rate remains the same (fixed) for an agreed period of time, often 2, 3, or 5 years. Unlike variable or tracker mortgages, a fixed mortgage can help buyers avoid any unpredictable fluctuations in interest rates that would otherwise affect their monthly payments.

Most notably, choosing a mortgage fixed for 2 or 5 years can provide borrowers with a clear and predictable repayment plan. As your interest remains the same, you’ll know exactly how much you will be required to pay each month, making it easier to budget and plan your finances.

Ultimately, fixed mortgages are particularly useful for those who are looking for certainty over their outgoings or are planning or predicting changes in their financial standing in the coming years.

When Is a 2-Year Fixed Mortgage a Better Choice in the UK?

A 2 year fixed rate mortgage can often be a great mortgage term choice if you’re looking for short-term stability matched with flexibility, or a lower starting monthly payment. A 2-year fixed mortgage can often come with lower initial rates as the shorter commitment time lowers the risk for lenders. Equally, this protects the borrower from any imminent exposure to potential interest rate changes over time.

This type of mortgage is ideal for those seeking immediate security while keeping the term short enough to maintain flexibility, allowing them to adapt or change plans in the near future. Specifically, if you anticipate interest rates rising or plan to reduce your loan-to-value over the coming years, a short-term fixed mortgage can provide stability while you make additional financial plans.

It’s important to note that one of the main contributing factors that will influence your interest rates is the total loan-to-value (LTV) ratio, which compares the size of your mortgage to the value of your chosen property. In the context of a 2-year fixed rate, you may be able to make overpayments and pay down a significant portion of your mortgage, while your property value could also increase.

In this case, by the end of the 2-year fixed period, your overall equity of the property may increase, reducing your LTV, and can potentially move you into a lower-risk bracket in the eyes of lenders. A lower LTV will often mean access to better interest rates, making a 2-year fixed mortgage a brilliant option for borrowers who want short-term flexibility and the chance to improve their borrowing position for when they remortgage.

To help you decide whether a 2-year fixed mortgage is right for you, we’ve outlined the key benefits you can expect from a 2-year fix, as well as the key considerations to keep in mind below:

Key Benefits of a 2-Year Fixed Mortgage:

• Lower Initial Monthly Payment

Lenders will often have lower starting interest rates on a 2-year fixed mortgage term compared to longer-term fixes, helping you keep your monthly repayments more affordable in the short term.

• Flexibility to Remortgage or Move Sooner

As the fixed term is short (2 years), you will be able to review your mortgage earlier. This makes it easier to remortgage to a potentially better deal, or move home, without being tied down for an extended period of time.

• Shorter Commitment if Your Plans Change

It’s not unusual for life circumstances to change quickly. A 2-year fix can allow more flexibility for future plans, whether that’s moving house, increasing your mortgage, or taking advantage of new remortgage offers.

• Potential to Take Advantage of Falling Interest Rates

If interest rates fall during your fixed term, you could be in a good position to remortgage at a lower rate after two years, potentially saving money compared to being locked into a longer-term deal.

• Short-Term Protection from Rising Interest Rates

Even though the term is only two years, a 2-year fixed mortgage will still protect you from any unexpected increases in interest rates during that period. Your repayments remain predictable, giving you short-term financial security.

Key Considerations of a 2-Year Fixed Mortgage

• Monthly Payments May Increase After Two Years

It’s vital to pay attention to your total fixed term period. Once the fixed term ends, your mortgage will typically revert to the lender’s standard variable rate (SVR) or whichever new deal you remortgage to. If you do not plan for this change, this could result in higher monthly repayments if interest rates have risen.

• Early Repayment Charges May Apply if You Exit Early

If you’re planning to move or remortgage before the fixed term ends, you may face early repayment charges. These fees will vary depending on your chosen lender and deal, and so it’s important to understand the total costs involved.

• Less Long-Term Security Compared to a 5-Year Fix

A 2-year fixed term will only provide predictable payments and stability for the short term. If you prefer certainty over a longer period, a 5-year fixed mortgage might be a better option.

• Requires Careful Planning for Potential Rate Changes

Because the term is short, it’s important to consider what might happen when the fixed period ends. Keeping an eye on interest rates and planning ahead can help avoid unexpected repayment increases.

Ultimately, a 2-year fixed rate mortgage can be an excellent choice for those seeking short-term stability while retaining the flexibility to explore new terms in the near future.

If you’re unsure about your mortgage options, then working with a trusted mortgage broker can make all the difference. Here at Boon Brokers, our dedicated mortgage advisers can help you explore and compare mortgage deals across the entire market.

We take the time to understand your needs and provide expert mortgage advice to help you determine whether a fixed-rate mortgage is the right choice for you.

When Is a 5-Year Fixed Mortgage a Better Choice in the UK?

A 5-year fixed mortgage can be a great option for borrowers who are looking for long-term stability and predictable monthly payments. While the initial interest rate may be slightly higher than a 2-year fixed rate term, the longer-term will provide additional protection against any unexpected rises in interest rates, and allows you to plan your household budget with confidence over a longer period.

One of the main benefits of a longer fixed term is that you can plan your finances with greater confidence. As your rate is fixed, you can rest assured that your repayments won’t change, regardless of any fluctuations in the Bank of England base rate or your lender’s standard variable rate (SVR).

It is worth noting that a 5-year fixed term (or indeed any fixed extended period) is best suited for homeowners who are not planning for any drastic financial changes in the foreseeable future. For example, those who don’t plan to move or remortgage in the near future.

Ultimately, a longer 5-year fixed rate mortgage is a brilliant option for borrowers who want an ‘accept and sit back’ mortgage option, allowing you to lock in a competitive rate for an extended period.

To help you decide whether a 5-year fixed mortgage is right for you, we’ve outlined the key benefits you can expect, along with the key considerations to keep in mind.

Key Benefits of a 5-Year Fixed Mortgage

• Certainty of Monthly Payments for a Longer Period

A 5-year fixed mortgage ensures your repayments remain the same for the agreed term, making it much easier to budget your finances over an extended period.

• Protection Against Rising Interest Rates

A fixed rate protects you from any potential increases in the Bank of England base rate or your lender’s standard variable rate (SVR). Naturally, a longer fixed period will extend this protection,  keeping your mortgage payments predictable.

• Reduced Risk of Rate Increases During the Fixed Term

With a longer fixed term, you avoid the risk of needing to remortgage when rates might be higher. If you’re happy with the fixed rate offer, you can lock in greater financial security with a 5-year fixed mortgage compared to shorter-term fixes.

• Greater Stability for Long-Term Financial Planning

Knowing your repayments won’t change for five years allows you to plan major expenses, savings, and investments with confidence, making it easier to manage your overall household budget.

Key Considerations of a 5-Year Fixed Mortgage

• Initial Monthly Payments Are Usually Higher Than a 2-Year Fixed term

Choosing to fix your interest rate for a longer period can often result in lenders offering a slightly higher interest rate compared to shorter fixed term products. As a result, your monthly repayments may be more expensive than other mortgage products.

• Early Repayment Charges Can Be More Significant:

Depending on your chosen lender, exiting a 5-year fixed mortgage before the end of the term may result in larger early repayment charges compared with shorter-term fixes. Understanding how early repayment charges could affect your mortgage is crucial if you think you might remortgage or move before the term ends.

• Less Flexibility if Your Circumstances Change

While a longer fixed term mortgage will provide stability, it also reduces your flexibility. Life circumstances, such as moving home, changing jobs, or adjusting your mortgage, can be harder to accommodate in a longer fixed-term, without incurring penalties.

• Committing for Longer May Limit Options if You Want to Remortgage Early

If you’re considering the idea of taking advantage of potentially better deals or lower rates in the short term, being tied to a 5-year fix will limit your ability to act. Careful planning is required to ensure your mortgage aligns with your long-term financial goals.

In conclusion, a 5-year fixed rate mortgage can be the best option for those seeking long-term stability. By fixing your interest rate for an extended time, you can rest assured with predictable monthly payments and the confidence to plan your budget without the stress of potential interest rate increases.

At Boon Brokers, we offer fee-free mortgage advice with whole-of-market access. Our dedicated mortgage experts can help you compare the latest mortgage products from across the market, including specialist and popular high-street lenders alike.

Our dedicated experts can help you compare the lowest 5-year fixed mortgage deals in the UK and review current mortgage rates, ensuring you secure the option that best matches your financial goals and personal circumstances.

How Do Current Interest Rates Affect Choosing a Mortgage Term?

Knowing the current interest rates is crucial and can play a big role in deciding whether a 2-year or 5-year fixed mortgage is right for you.

Generally, when interest rates are high, a shorter 2-year fixed term can give you the chance to remortgage sooner, should the interest rates be forecasted to drop. Comparatively, should interest rates be low, or expected to rise, a longer 5-year fixed term period can help protect you from any future increases that happen during this time.

For example:

Let’s say that you take out a £250,000 mortgage, choosing a 2-year fixed rate term at 5%. This mortgage option could mean lower monthly payments at the start, freeing up more money for savings or other financial goals. If interest rates fall after these two years, you now have the option to remortgage and reduce your payments further.

Alternatively, should you choose to secure a 5-year fixed rate term at 5.3%, your payments will be slightly higher, but should interest rates rise at all, you can rest assured that you are protected against the risk of rates rising during that period.

This example highlights the key difference between short-term and long-term fixed mortgages. While a shorter-term fix offers flexibility to take advantage of falling rates, a longer-term fix provides stability and protection if interest rates should increase.

Can a Mortgage Broker Help Me Choose Between Mortgage Terms?

Yes, a mortgage broker can help you choose between a 2-year or 5-year fixed mortgage. A trusted mortgage broker with whole-of-market access can compare multiple lenders, including mortgage products that might not be advertised to the general public, providing personalised advice on which mortgage term best suits your financial situation and long-term plans.

In short: deciding whether to go with a 2 year or 5 year fixed mortgage involves understanding your personal circumstance, taking into consideration interest rates, fees, and your long-term plans.

At Boon Brokers, our dedicated mortgage advisers provide expert fee-free mortgage advice with whole-of-market access. We take the time to understand your exact needs and guide you through different mortgage options and explain how each product will affect your monthly payments, long-term costs, and flexibility.

By working with Boon Brokers, you will gain access to a dedicated mortgage expert who will provide you with personalised mortgage advice that is tailored to your goals. Whether you’re planning to move home soon, remortgage in a few years, or secure long-term stability, our team will guide you through every step of your mortgage journey, completely fee-free.

Contact Boon Brokers to speak with a mortgage adviser and start your mortgage journey today.