A simples guide

5 year fixed rate mortgages

Arranging a mortgage can be a daunting process. For many it’s a complicated minefield of confusing percentage rates, finicky financial jargon, and lots of small print. Chances are though you’re already clued up enough to consider taking out a fixed rate mortgage – so is one right for you?

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What is a 5 year fixed rate mortgage?

A 5 year fixed rate mortgage is as simple as its name suggests – it’s a mortgage that maintains the same interest rate for the first 5 years you have it, no matter how much interest rates rise or fall. Once those 5 years are up, the interest will transfer to the lender’s standard variable rate unless you move to alternative mortgage. Fixed rate mortgages come in a variety of sizes, with some lasting less than 5 years, and some for longer.

Sound good? While simply hunting for the best 5 year fixed rate mortgage might seem like a no brainer, these types of mortgages, like anything in life, do have their pros and cons.

What are the benefits of a 5 year fixed rate mortgage?

- It won’t budge: even if interest rates rise all around you thanks to the economy, yours won’t move a muscle for those first 5 years. Not even flinch.

- You’ll know what you’re paying: right down to the last penny.

- It makes budgeting a breeze: with no surprise rate rises, a 5 year fixed rate mortgage allows you to budget around your repayments more effectively. This in turn gives you more financial freedom to plan for the future – potentially putting you in a better position when those 5 years are up.

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What are the disadvantages of a 5 year fixed rate mortgage?

- It won’t budge:even if interest rates are plummeting all around you, yours still won’t move a muscle for those first 5 years – even if you’re paying lots more than a non-fixed variable rate.

- Hefty fees:when arranging a 5 year fixed rate mortgage you typically have to cough up a fee, which can sometimes be up to £2,000. If you can’t afford to pay it right away you can potentially have the amount added to your mortgage – though you’ll have to pay interest on that too.

- Escaping is pricey:if for whatever reason during those 5 years you want out, then most mortgage lenders may charge you a penalty. This is known in the biz as an ERC, or an early repayment charge. Depending on the when you want to leave the mortgage and how much you repay the ERC could cost you thousands of pounds; so make sure you’re in it for the full five years.

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Picking out the best 5 year fixed mortgage rate

So you’ve juggled and weighed the pros and cons and have decided a 5 year fixed rate mortgage is probably right for you. There’s plenty to think about while choosing from the ocean of lenders out there, but the two immediate things you need to consider are:

The rate itself: mortgage rates are determined by a variety of factors, including your credit history, your location, and the size of your down payment. The higher your deposit, the lower your offered interest rates are likely to be. Obviously you’ll want to find the lowest rate available to you, but be wary: Some of the lowest 5 year fixed rate mortgages may have high arrangement fees, effectively making their attractive percentages redundant. Always do your own maths.

Fees & charges: read the small print and make sure you know exactly what you’ll be charged upfront, and what you’ll be charged if you cancel. Even if the second scenario sounds unlikely, it’s always good to consider these things just in case.

Get comparing

At comparethemarket.com comparing stuff is what we do best. We’ve rounded up offers from many of today’s top mortgage providers and organised them beautifully, meaning you’re bound to find something that ticks your boxes. 

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