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What is a 5-year fixed-rate mortgage?
It’s a type of mortgage where the interest rate charged on your loan is frozen for five years. So what you pay each month won’t be affected if interest rates rise or fall during that time.
When the deal ends, you will move to the lender’s standard variable rate (SVR) unless you remortgage and move to a new deal with your current lender, or a new one.
» MORE: A simple guide to remortgaging
How to find the best 5-year fixed-rate mortgage
If you’re looking for the right mortgage for your circumstances, use our mortgage comparison tool to compare five-year fixed-rate deals. Filter the results by property value, mortgage amount, term length and mortgage type and you will see how different fees, interest rates and terms from leading lenders compare, including how much you may pay each month.
Advantages of a 5-year fixed-rate mortgage
The main benefit of fixing your mortgage rate for five years is knowing that, whatever happens to interest rates, you’ll pay the same percentage of interest for that period of time – unless you leave the deal early or exceed overpayment limits. This predictability can help you budget and can also offer peace of mind.
Fixed-rate mortgages often appeal to first-time buyers on a tight monthly budget. And if you get a fixed-rate mortgage when the base interest rate is extremely low, that low rate will remain in place during those first years of the mortgage.
Disadvantages of a 5-year fixed-rate mortgage
Borrowers pay a premium for fixed-rate deals because fixing rates for any amount of time involves some level of risk for the lender. The longer your fixed-rate period is, the higher the rate of interest is likely to be as you’re paying for the security of a longer period.
If you need to remortgage to a new deal before your fixed term ends, maybe because you move home (if the product does not incorporate porting) or need to make a change to your agreement, you are likely to have to pay a charge. This isn’t usually the case if you have an SVR deal.
Mortgage deals with a fixed rate of interest most commonly have terms from two to five years. A potential downside to a longer, five-year fixed mortgage is that if interest rates fall during that time, your rate won’t reduce in line with them.
Why mortgage interest rates matter for a fixed-rate mortgage
You should consider the total cost of a mortgage for the full term of the deal when comparing mortgages, including lenders’ fees and interest rates. The higher the interest rate, the more your monthly repayments will usually be. And the longer the term, the more interest you’ll pay.
The Bank of England base rate influences mortgage interest rates, but so do the internal policies and strategies of individual banks and building societies.
A mortgage is a big financial commitment, which can take many years to repay. So finding the best deal for you is important if the loan will be affordable over the long term.
If you do nothing when your fixed-rate mortgage term ends and are moved to your lender’s SVR, it is likely to mean you will pay a higher rate of interest than if you switch deals.
Your options when a 5-year fixed-rate mortgage ends
When your fixed-rate deal ends, your lender will automatically move you on to their SVR, which tends to be higher and cost more.
If you don’t want that to happen, you can remortgage by either taking out a new deal with your existing provider, or finding a new lender that offers a better option. If your plan is to remortgage, start looking around six months before it’s due to end. Your mortgage lender may get in touch before your current term ends to offer another deal.
When you consider remortgaging, be sure that you factor in all fees and costs involved in the new deal – not just the headline rate. This includes any early repayment charge (ERC) you might have to pay for leaving the agreement before the tie-in period has ended, and any mortgage arrangement fee, but most borrowers tie in their new product with the end of the old deal to avoid these costs.
If you are remortgaging and have a low loan-to-value (LTV) ratio, or your home has risen in value over time, you may be able to access more deals and at better rates.
» MORE: 7 remortgaging tips to consider
5-Year Fixed-Rate Mortgages FAQs
Should I get a five-year fixed-rate mortgage?
A five-year fixed-rate mortgage could be an option if you want to secureyour repayments from fluctuations and won’t be looking to change your mortgage before the five-year term ends. Just keep in mind having that security usually costs more.
If you have more of an appetite for risk, and are happy remortgaging to a new deal sooner, a shorter-term deal is an alternative. As getting a fixed rate for longer means greater risk for a lender, they may charge a lower rate of interest for a two-year fixed term, for example, compared to five years.
But consider other factors, too, when comparing mortgages, such as arrangement fees and charges for early repayment.
» MORE: Top 2-year fixed mortgage deals
How do I choose the best five-year fixed-rate mortgage for me?
Which is the best five-year fixed-rate mortgage for you will depend on your personal circumstances.
The deal with the lowest interest rate might be the best option for you, but have you checked the fees? Or it could be that choosing a lender offering cashback or other discounts is preferable. You could also find that some lenders do not offer the right length of term for you.
You can use the mortgage comparison tool to compare five-year fixed mortgage rates, then select the product that best suits your personal circumstances.
Is a five-year fixed-rate mortgage a good idea?
The main advantage to a five-year fixed-rate mortgage is knowing how much you will need to pay each month for five years. That can help you make more informed financial decisions over that period. Whilst that might come at a cost, It can also give you some peace of mind and stability.
Can I keep my five-year fixed-rate mortgage?
You can choose to stay with your mortgage lender and remortgage to another fixed-rate term when the existing agreement ends, though the interest rate you are charged may change. This means your lender transferring all or some of your loan amount to a different product. If you don’t ask to be moved to another deal, you will be moved to your lender’s SVR automatically when your fixed-term ends.
Another option is remortgaging with another lender after the tie-in period of your current deal ends, if you think you could get better fixed-rate terms elsewhere.
You will also need to get a new deal if you want to make changes to your mortgage, such as increasing the length of the term, borrowing more or removing a name from the agreement. Just be aware that you’ll be assessed for affordability again, when you apply. So it may not be an option if your financial situation has changed since taking out the initial mortgage.
Some lenders allow mortgage porting, which means transferring your current mortgage over to a new property. Although it may still involve product and valuation fees and reapplying for the deal. And there is no guarantee that you will get an agreement or better terms from your lender than if you applied for a new mortgage elsewhere.
If you’re not sure what is best for your situation, a mortgage adviser may be able to help you decide.
Can I leave a five-year fixed-rate mortgage deal early?
If you want to leave a fixed deal early, you will have to pay an ERC. This is usually a percentage of the outstanding balance and decreases over the term of the deal. So this would mean paying a higher percentage charge for leaving at the start of the deal than in the final year – for example, a 5% charge for leaving in year one and a 2% charge for leaving in year four.
Some lenders won’t charge an ERC for moving early if you switch to another deal with them in the last few months of the agreement. And some extend the tie-in period beyond the fixed-rate period. Your mortgage statements should outline the ERC on your current agreement and how long the tie-in period lasts. If you’re unsure, check with your mortgage provider.
You’ll want to make sure that the cost of switching isn’t higher than the savings you’ll make with the new deal, also taking into account any exit fees.
Can I pay off a fixed-rate mortgage early?
It is possible to pay off a fixed-rate mortgage ahead of time. But as much as paying a lump sum early to reduce the amount borrowed might save you money in interest over the term, it usually comes with a charge.
How much you are charged for early repayment will depend on your lender and the terms of your mortgage arrangement. Some lenders charge a fixed fee for early repayment, though it’s usually a percentage of the remaining sum of the mortgage. Longer fixed-rate periods often come with a higher ERC.
So you might want to consider if this is the best use of your available funds, bearing in mind the additional fees involved. You could also look at other ways to pay off your mortgage early, such as making overpayments, which might reduce the length of your mortgage term, and reduce the total payment sum of your mortgage. Some lenders set limits on overpayments, while others may not allow them at all, so be sure to review the terms and conditions of your mortgage before paying more.
If you’re in a position to make large mortgage overpayments, you may prefer to be on a standard variable rate (SVR), as deals with this type of interest rate tend not to have an ERC.
Do five-year fixed-rate mortgages offer incentives?
Lenders sometimes include incentives with fixed-rate mortgages, like cashback and free legal fees, or a free valuation. These can amount to sizeable upfront savings, but be sure to look at the interest rate charged and the true cost of the whole package over the full length of the mortgage, when you compare products.
How much deposit do I need for a five-year fixed-rate mortgage?
Taking out a mortgage means paying a deposit of at least 5% of the purchase price, but often more.
However, saving up a larger deposit can be a way of accessing the best mortgage rates. Five-year fixed-rate deals, like other mortgages, will likely offer lower interest rates if you pay a larger deposit and have a lower loan to value (LTV).
Do I need a good credit score for a fixed-rate mortgage?
Mortgage lenders look at a few factors, including your income, deposit amount and regular outgoings, when deciding if they should lend to you, and the deal they are comfortable offering.
But it is generally the case that the better your credit score, the higher your chances of getting a good mortgage deal. Your credit score may also help a lender decide how much the loan should be and the interest rate they will charge.
Using a credit reference agency, your lender will see your borrowing and repayment history, including any missed payments, and get an idea of how likely you’ll be to repay them in full and on time.
There are steps you can take to improve your credit score before applying for a mortgage. And while having a bad credit score reduces your likelihood of getting the lowest, most affordable rates, there are lenders that specialise in bad credit mortgages.
» MORE: How to check your credit score
What are the alternatives to a five-year fixed-rate mortgage?
Instead of a five-year fixed-rate mortgage, you could opt for a shorter fixed term, a longer fixed term, a variable deal or a tracker mortgage.
You may also be able to access a deal with a 10-year fixed rate.
If you decide not to opt for a fixed-rate deal, lenders offer standard variable rate (SVR) options, which is what fixed-rate deals revert to at the end of their term.
Joel Kempson is a personal finance expert and writer at NerdWallet. He has previously written for Money.co.uk and Uswitch, as well as being quoted in the Daily Express, The Mirror and The Sun. Read more
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