Mortgage blog: How long should you fix your mortgage for?
Recent research found that more than four in five borrowers took fixed-rate mortgages in the first three months of 2013. Council of Mortgage Lenders data showed that 83% of new mortgages were arranged on a fixed basis between January and March 2013 - the highest proportion since records began in 1993.
If you're thinking of taking a fixed-rate mortgage, one of the first questions to ask is "how long should I fix my mortgage for?" With hundreds of two-, three-, five- and ten-year fixed deals available, choosing the right product can be tough. Our guide will help you to decide what the best fixed-rate term for you is.
Stability versus cost
Fixed-rate mortgages have plenty of benefits. You benefit from the peace of mind of knowing exactly how much your repayments will be for a fixed period. You will protect yourself against any rises in interest rate. And it can help you budget and manage your monthly expenditure.
Rates on fixed-rate mortgages have fallen significantly in recent months. However, you shouldn't choose a fixed-rate deal on rate alone. Keith Osborne, editor of WhatHouse.co.uk says: "Many people are being drawn to five-year fixed rate deals as these offer the certainty of low repayments for the medium term. However, the type of fixed rate you should choose should be based on your own circumstances and future plans.
"For example, if you're planning to move house within five years, a shorter fixed-rate may be more appropriate. And, while a shorter-term fixed rate deal may be appealing as your repayments will be lower, you may end up paying more in the long run when your mortgage reverts to your lender's standard variable rate."
Choosing a longer-term fixed rate can also have some nasty surprises if you want to come out of the deal early, as we see next.
Beware of early repayment charges
"One of the main disadvantages of a five- or even ten-year fixed rate is that they often come with significant early repayment charges," continues Osborne. "If you want to repay your mortgage within the fixed-rate term you can find yourself facing a penalty of thousands of pounds.
"In addition, if you want to move house you have to ‘port' your mortgage deal with your existing lender. If your circumstances have changed since you took out your initial mortgage - for example your credit record has deteriorated or you earn less money - your lender may not agree your new mortgage and you could be left with a penalty to pay."
Click here to find out more about how whathouse.co.uk can help you find the right mortgage.