Five year fixed rate mortgages

Arranging a  mortgage can be daunting. For many it’s a minefield of confusing percentage rates, financial jargon and small print. We’ve put together a guide to help you decide if a fixed-rate mortgage is right for you. 

Arranging a  mortgage can be daunting. For many it’s a minefield of confusing percentage rates, financial jargon and small print. We’ve put together a guide to help you decide if a fixed-rate mortgage is right for you. 

Mark Gordon
From the Mortgages team
minute read
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Posted 29 APRIL 2020

What is a five year fixed rate mortgage?

A five-year fixed rate mortgage is a loan that gives you the same interest rate for five years, no matter what happens to Bank of England interest rates. Once those five years are up, your mortgage will usually transfer to the lender’s standard variable rate, unless you choose to switch your mortgage to a different product or provider. The standard variable rate is typically higher than the fixed rate.  
A fixed-rate mortgage, meanwhile, can last for fewer than five years, or even longer. As with many things in life, these types of mortgages have their pros and cons. 

What are the advantages of a five year fixed rate mortgage?

For some, it’s worth fixing your interest rate because: 

  • It gives you security 
    A fixed rate means that, even if interest rates rise, your mortgage payments won’t go up. 
  • You’ll know what you’re paying each month 
    That makes it easier to budget. With no surprises, you’ll have more financial freedom to plan for the future.  

What are the disadvantages of a five-year fixed mortgage?

Five year fixed-rate mortgages do, of course, have their downsides. For example:  

  • Your interest rate is fixed 
    If interest rates fall, you could be stuck paying a higher rate for five years. That may mean you end up paying more overall than you would have with a tracker mortgage. 
  • You’ll need to pay a fee 
    As with other mortgages, when arranging a five-year fixed-rate mortgage, usually you’ll have to pay a fee. If you can’t afford the fee upfront, you can often have the amount added to your mortgage. But you’ll also have to pay interest on that. 
  • Changing your mortgage during your fixed term is pricey  
    If, for whatever reason, you decide you want out of your fixed-term rate before the five years are up, most mortgage lenders will charge a penalty. Early Repayment Charges (ERC) can cost thousands, so only take a fixed-term interest rate if you’re sure you’re going to stick with the mortgage for the duration. 

How can I pick the right five year fixed rate mortgage for me?

If you’ve decided that a five-year fixed rate mortgage is right for you, there’s plenty to think about. When  choosing a lender, the first things to consider are: 

  • The rate itself 
    The first thing to do is check the five-year fixed mortgage rates. Mortgage rates are determined by several factors: your credit history, where you live and the size of your down payment. The higher your deposit, the lower your interest rate is likely to be.   
    Obviously you’ll want to  find the lowest rate available to you, but be aware - some of the lowest fixed-rate mortgages have high arrangement fees.
  • Fees and charges 
    Read the small print. Make sure you know exactly what you’ll be charged upfront and what you’ll pay if you cancel. Even if the second scenario sounds unlikely, it’s good to consider these things, just in case. 
    When choosing a mortgage, it’s important to work out the  total cost  – rate plus fees – to ensure you’re comparing like for like. This is shown as ‘Initial term cost’ in our comparison. It’s the total cost to you within your five-year fix, including repayments and fees. Ideally, you’ll be looking for the best fixed-rate mortgage with no fees, but this may not exist! 

How much deposit do I typically need to save? 

How big a deposit you need will depend on the price of the property you’re buying. As a rule, you’ll need a minimum of 5% of the property’s value.  
As of September 2020, the average UK house price was £245,000, so for that you’d need a deposit of roughly £13,000. But to access the cheapest deals, many lenders will insist you stump up more than this.  
If you don’t have a large deposit, there are Government schemes in place to help, such as Shared Ownership and, in London, Help to Buy. It can seem a bit daunting but don’t worry, there are lots of ways to get a mortgage.

Can I pay off the mortgage before it ends? 

It should be possible to leave your mortgage early, but the bad news is you’ll probably have to pay an Early Repayment Charge (ERC). Your lender can tell you more.  

Can I overpay a fixed-rate mortgage?

Many banks will let you overpay a certain amount without penalties. You’ll need to talk to your lender for details. 

What should I do if my five year fixed rate mortgage is coming to an end?

Your provider’s standard variable rate is likely to be uncompetitive. If your 5-year fixed rate mortgage is nearly up, it’s worth shopping around to see if you can find a better deal. We can help you compare mortgages quickly and easily. 

Compare fixed rate mortgage deals

Looking to compare fixed rate mortgage deals? Let us do the hard work for you. All we need is a few details about you and your property, and we’ll give you a list of appropriate quotes to choose from. 

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