Deciding between a 2 or 5 year fixed mortgage rate depends on your financial goals, your market outlook, and your personal circumstances.
Below we outline the key things to consider (remember, your mortgage broker is always here to guide you):
2 or 5 year fixed mortgage and Interest Rate Environment
Falling Rates: If mortgage rates are expected to fall in the medium term, a 2 year fixed mortgage rate may be better. You’ll be able to remortgage sooner at a potentially lower rate.
Rising Rates: If mortgage rates are expected to rise, locking in a 5 year fixed mortgage rate could protect you from increases and provide cost certainty.
2 or 5 year fixed mortgage and Cost and Monthly Payments
2 year fixed mortgage rate: Typically comes with slightly lower rates than five-year terms – this means lower initial monthly payments.
Unusually, and following the market volatility in 2022, (two year fixed mortgage rates are currently pricing over five year fixed rates)
5 year fixed mortgage rate: May have a higher rate, but provides long-term payment stability.
Your Future Plans
2 year fixed mortgage rate:
- Suitable if you might move, sell, or refinance in the near future
- With a shorter commitment comes increased flexibility
5 year fixed mortgage rate:
- If you’re settled and want stability for the medium to long term
- Less hassle with less frequent renewals
2 or 5 year fixed mortgage and Penalty Risk
Breaking a 5 year fixed mortgage rate early often involves higher penalties than breaking a 2 year fixed mortgage rate.
If there’s a chance you will need to break the mortgage early (job change, divorce, upsizing), a 2 year fixed mortgage rate might be safer.
2 or 5 year fixed mortgage and Renewal and Market Exposure
2 year fixed mortgage rate: If you are the more adventurous type, you will renew more frequently, which could be good or bad depending on market conditions.
5 year fixed mortgage rate: If you are the more cautious type, you are shielded from market volatility for a longer period, which provides peace of mind.
2 or 5 year fixed mortgage and Flexibility vs. Stability
2 year fixed mortgage rate
Pros
- More flexibility
- Lower early repayment charges if rate exited early
Cons
- More frequent renewals
- Potential rate risk
5 year fixed mortgage rate
Pros
- Payment stability
- Longer protection form rate increases
Cons
- Higher early repayment charges if rate exited early
- Less flexible
2 or 5 year fixed mortgage – Sub Accounts
If you have taken additional borrowing since your mortgage started you will likely have sub accounts on your mortgage account.
For example, a borrower with initial borrowing of £250,000 and a £50,000 top up later will have one large and one small sub account which, since they were taken at different times, on different rates, will be on mortgage rates that end at different times. This can increase the complexity and cost of selected new mortgage rates or re-mortgaging. It is therefore beneficial to bring your mortgage sub account rates timings into line with each other.
This can be a factor in the decision for a 2 or 5 year fixed mortgage rate on a sub account.
3 year fixed mortgage rate options can be especially useful for this.
2 or 5 year fixed mortgage – Summary and Decision Guide
Choose a 2 year fixed mortgage rate if:
- You anticipate changes in your life or finances
- You expect interest rates to fall
- You value short-term flexibility
- You are keen obtain lower mortgage rates when available
Choose a 5 year fixed mortgage rate if:
- You want predictable payments and long-term stability
- You expect interest rates to rise
- You’re planning to stay in the property for at least 5 years
If you have any concerns about whether to choose a 2 or 5 year fixed mortgage rate, speak to your mortgage broker.