How long should I fix my mortgage for?
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How long should I fix my mortgage for?
Carolyn Dunion explains how long you should fix your mortgage for.
Should I fix my mortgage?
This is a big question and as we’re speaking in October 2024, there’s a lot of news around interest rates and what they’re going to do.
The reality is that nobody knows what’s going to happen. I would say on balance at the moment, fixing your mortgage interest rate is probably a good idea – because there’s quite a bit of uncertainty.
That advice might change – and it might change fairly soon. That’s why it’s so important to speak to somebody like myself, to stay up to date with the right advice at any given time.
But for now, I think there’s a lot of merit in fixing a rate, as it means you have stability for a period of time.
For how long should I fix my mortgage – two, five or 10 years?
Typically you’ll see fixed rate products lasting for two, three, five or even 10 years. How long you fix for will depend on your own circumstances: how long you intend to be in the property; how open you are to reviewing your arrangements sooner rather than later, and whether you could take the risk that interest rates might have risen at that point.
Some people like to fix for as long as 10 years, particularly if the rates are low at the time they’re taking the product. I tend to caution people against fixing for as long as that, because you really don’t know what’s going to happen over such a long period of time. It can sometimes be too long to be tied into a product.
But again, for some people, it is the right solution. It’s all about your personal circumstances.
What are the advantages of a fixed rate mortgage? What are the disadvantages of choosing a fixed rate mortgage?
The big advantage is knowing how much your mortgage will cost for as long you have it. If things in the economy cause interest rates to rise, it doesn’t matter to you whilst you’re on that fixed rate.
For a lot of people, particularly those on fixed incomes, that’s quite reassuring. They have a degree of certainty.
But there are two disadvantages to fixing a mortgage rate. One is that if you want to sell the property or otherwise repay the mortgage during that fixed rate term, most products have an ‘early repayment charge’. That varies from product to product, but it’s usually a percentage of your outstanding mortgage.
For most people, that would cost thousands, not hundreds. So that’s not ideal. You are tied in for a period of time and it lacks a bit of flexibility. You absolutely can sell, but there is that financial penalty.
The other disadvantage is a hot topic at the moment – if interest rates fall, you probably wouldn’t be able to take advantage of that saving. Some people are reluctant to fix for long, or fix at all, because they want to see if rates will come down.
It’s anybody’s guess as to whether that will happen, how long it might take and how much they might come down by, but that’s certainly something to bear in mind.
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How do the standard or average rates vary on different fixed term mortgages?
In recent times, the longer you fix for, the lower the interest rate is. At the moment, in October 2024, two year products are more expensive, and five year deals are cheaper. That can change, depending on the economy and where lenders’ appetites are.
It used to be that two years was cheaper and five years was more expensive, because you had a longer period of stability, but that’s turned around now.
Is it always better to fix my mortgage for longer?
No, not always. It depends on the mortgage products that are available, how attractive they seem at the time and your own personal circumstances. But again, that’s why it’s so useful to be able to chat it through with an advisor.
What happens when my fixed rate mortgage ends?
If you do nothing, you will usually go on to the lender’s standard variable rate. Because it’s variable, we’ve no idea what that rate will be at the point that you fix your mortgage. But at the moment, variable rates are significantly higher than fixed rates.
If you are just coming out of a fixed deal, you’ll find that variable rates are a big shock to the system after you’ve been enjoying 1% or 2% rates.
It’s always important to not blindly go onto the standard variable rate. In some circumstances it’s the right thing to do, but you need to consider your options and make a decision before you get to the end of that fixed rate.
Where can I get advice on fixed rate mortgages?
McKendry Dunion Financial would be delighted to help. We’ll give you all the advice that you could possibly need for your personal circumstances – at the time when you need it. We’re very happy to have that conversation with you.
What happens if I fix my mortgage before interest rates fall? Is it better to wait for interest rates to drop before remortgaging?
I get asked this question on an almost hourly basis at the moment. But without a crystal ball, it’s impossible to know exactly what to do. However, I would say that being on the variable rate is not a good place to be for most people. Again, it is down to personal circumstances.
Waiting to see what happens with interest rates is not probably the most sensible option. If interest rates fall, I don’t think they’re going to fall dramatically. If you’ve been on the standard variable rate for a few months, any potential savings could easily be compromised.
All you really can do is take advice at the time that you need it and make the decision then. If the right advice is to consider fixing your mortgage, I would take that advice rather than waiting for the market to change.
Can I get a mortgage with a longer or full fixed term rate?
Most of the time, 10 years is the longest, but those types of products are more unusual than the typical two, three, or five.
It’s worth having a conversation to see what’s available at the time you’re looking. With longer term fixed rates, you need to have a good eye on the penalties if you do need to break the term. Only in very specific circumstances would we think long term products are a good idea.
What else do we need to know about fixing a mortgage?
There’s no substitute for speaking to somebody who’s got their finger on the pulse of what’s happening. A good mortgage advisor won’t be able to predict the future about what’s going to happen with interest rates, but they can help you navigate that decision making process.
For most people, a mortgage is their most expensive cost. Working out what’s right for your circumstances is so important, and it can be hugely advantageous to get expert advice.
YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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