5-year fixed-rate mortgages

• Protection against rate changes: Your monthly repayments will be protected against any rate changes, no matter what happens in the wider market

• Ability to budget: Knowing that your mortgage payments will remain the same for five years will make it easier to budget for the future

• Fewer fees:  By fixing your mortgage for five years, you will need to find deals less often, avoiding extra arrangement fees

• Higher interest rates: It is often the case that 5-year fixed deals come with higher rates than shorter options like 2 or 3-year fixed mortgages. They can also be more expensive than long-term options like 10-year mortgages.

• Miss out if rates fall: If interest rates in the wider mortgage market fall, you won’t see your payments go down, which you would if you had a variable-rate mortgage product. 

• High exit fees: If your situation changes, or you want to switch to a cheaper deal, you may face high early repayment charges. These are charged as a percentage of your balance and can prove costly.

When deciding whether you should opt for a 5-year fixed mortgage or a shorter-term deal like a 2-year mortgage, there are a few things to consider:

• Interest rate stability: Are interest rates stable or likely to fluctuate in the future? A 5-year deal will give you more protection against rising rates compared to 2-year mortgages, but if rates go down, you could switch to a cheaper deal sooner with a 2-year fixed rate.

• Monthly repayments: Traditionally, 2-year deals are the cheaper option; however, the difference between the two has reduced in recent years. 

• Future plans: When do you plan to move home? If you want to move in the near future, a 2-year deal would offer more flexibility, however, if you have no plans to move, a 5-year deal will give you more stability. 

• Your attitude to risk: If you are risk-averse, a 5-year deal offers the safety of knowing your repayments are set for an extended period. A 2-year deal means you could switch to a better deal more quickly, or face a hike in interest if rates have gone up.

A 5-year fixed-rate mortgage typically comes with slightly higher interest rates compared to shorter-term fixed-rate mortgages, like 2 or 3 years. This is because lenders tend to charge more for the stability and protection from interest rate fluctuations that you get from longer-term fixed mortgage deals. 

However, this isn’t always the case, and in times of turbulent interest rates, fixing for a longer period can be cheaper. This is often down to the fact that shorter-term deals are more closely affected by movements in the Bank of England base rate.

When working out which deal is the most expensive, you should think about things like fees, charges, and any potential penalties for early repayment. For example, fixing for a longer period means you will need to switch mortgages less regularly, avoiding possible arrangement fees, but you’re more likely to face early repayment charges if your situation changes.

When working out what interest rate to offer you, mortgage lenders consider several factors, like your credit history and the deposit you put down. 

Lenders will offer lower rates to those who they see as a ‘lower risk’. That refers to customers are most likely to keep up with their repayments and not fall into negative equity. So, if you have bad credit and a small deposit, you may be offered higher rates compared to somebody with good credit and a large deposit.

Mortgage rates are also set in line with the Bank of England base rate. As the base rate goes up, it means it is more expensive for the lender to borrow, so they pass this on to borrowers through higher rates. 

For this reason, mortgage lenders will also adjust their rates in response to any other changes to their funding costs.

You can, but you will normally need to pay early repayment charges. These are usually charged as a percentage of your mortgage balance and become lower the closer you are to the end of your fixed-rate period. 

For example, the ERC could be 5% of your mortgage balance during the first year of your term but gradually reduce to around 1% in the last year. In this example, if your balance is £200,000, your exit fees could be £10,000 in year one or £2,000 in year five. 

If you want to leave your fixed-term deal early, work out exactly how much it will cost you in ERCs. If you're leaving your deal to move to a cheaper product, make sure any savings cover the cost of the fees you’ll need to pay.

No, you won’t be able to extend your current fixed-term deal when the 5-year period ends. Instead, you’ll need to move to a new product to stay on a fixed-term deal. 

You can do this with your current lender by doing what’s known as a ‘product transfer’ or remortgage to a new mortgage provider. Remember that mortgage rates fluctuate, and your new deal may cost you more than your old one.

You can extend your whole mortgage term if you want to. If you’re in a fixed-rate deal, you may need to wait until your fixed term is over to do so, depending on your lender. This could reduce your monthly payments but would mean it will take longer for you to pay off your mortgage.