Do not bother fixing your home-loan rate if you are only going to lock it in only for two years — this would not give you protection from interest-rate hikes. You should also never exceed five years, as fixed rates will only restrict the flexibility of your home loan.
Is it better to have a 2 or 5-year fixed mortgage? 2-year fixed mortgages often benefit from a lower interest rate, but the 5-year fixed mortgage rates offer you more long-term financial stability, as you're locked into the fixed deal for longer.
Those keen to have the security of knowing how much their mortgage will be each month may prefer to opt for a 5-year fixed-rate deal. A lot can happen in 5 years, however, so think carefully about your family setup and also how you would feel if interest rates are suddenly cut.
If you had a 25-year mortgage, and you were to remortgage ten times over that period, these fees can add up. But if you're fixing for five or 10 years, or even longer, you'll pay fewer of these fees, especially compared with someone who changes their mortgage every couple of years.
You will most likely need to pay an early repayment charge and exit fee if you decide to switch the mortgage before the fixed rate ends. You'll need to think about these factors before deciding if remortgaging is worth it.
When your fixed rate mortgage comes to an end, you will automatically move onto a standard variable rate (SVR) mortgage. No matter the term of your fixed contract, the interest rate on SVR mortgages is usually a considerable increase and your monthly repayments could rise dramatically.
The quick answer is yes, you can certainly break the loan agreement on your fixed-rate mortgage before its term period expires, but it's not always a recommended choice to do so.
The shorter your mortgage term, the fewer total payments you'll have and the less interest you'll pay overall. However, many people cannot afford the higher monthly payments that come with a shorter term mortgage. Another option is to choose a longer term and then pay your mortgage off early if you can afford to do so.
While it may not be able to slash interest rates quickly – or it could risk prices jumping again – a fall in inflation could mark the end of rising rates. However, financial markets expect the base interest rate to keep climbing. It is forecast to peak between 5.75% and 6% by the start of 2024.
No change to your interest rate
Nothing will change if you're on a fixed rate mortgage.
People with a 15-year term pay more per month than those with a 30-year term. In exchange, they are given a lower interest rate. This means that borrowers with a 15-year term pay their debt in half the time and possibly save thousands of dollars over the life of their mortgage.
The Cons. Higher interest rate: With a 30-year mortgage, most borrowers will have a higher interest rate than shorter-term fixed-rate mortgages. The longer a lender has to wait to be repaid, the bigger they deem the loan a risk, so they charge higher interest rates.
Peace of mind: A five-year fixed rate mortgage can provide peace of mind, knowing that you have a predictable mortgage payment that won't fluctuate with interest rate changes. If you plan to stay in your home for the foreseeable future, this is a great benefit to a longer-term mortgage.
Fixed-rate mortgage drawbacks
The downside of fixed-rate mortgages is that rates are higher than on adjustable-rate loans — at least for the first few years of the loan. This can mean paying more in interest and a higher monthly payment, especially if you'll only be in the home for a few years.
However a lot can happen over 5 years, so there is a chance mortgage interest rates could drastically change over that time, which could mean you'll end up paying more interest in comparison to live rates. See the today's best 2 or 5 year fixed rate mortgage from our panel of over 100 lenders.
With inflation returning to normal and economic growth running below normal by the beginning of 2024, both parts of the Fed's dual mandate will be signaling for rate cuts. Thus, we expect the first rate cut to come in February 2024, followed by steep cuts until mid-2025 bringing the rate back down to 1.5%-1.75%.
For the first half of 2023, interest rates will gradually decline. We could see interest rates go below 6.5% by June or so of 2023, although this will depend on buyer activity over some of the busiest real estate months of the year.
However, if inflation continues to decline and the Fed is able to hold rates where they are and eventually cut them, mortgage rates are likely to decrease slightly in 2023. However, they're highly unlikely to return to the rock-bottom levels of just a few years ago.
The most common mortgage length is a 30-year or 15-year term but there are 10-, 20- and 25-year options. As a rule, shorter loan terms come with higher monthly mortgage payments because you're spreading your payments out over a shorter length of time. But shorter loan terms also come with lower interest rates.
With a five- or 10-year mortgage term, you have years' worth of extra predictability baked into your loan. With a three-year term, though, you could be looking at a rate hike much sooner — especially when mortgage rates are climbing as steadily as they are today.
How long should I fix my mortgage for? You can fix your mortgage between one and ten years. The most popular options are two-year or five-year fixed-terms.
Paying off your mortgage ahead of schedule could mean significant savings, but before doing so, you should consider all potential consequences, including: How much you'll save in interest charges. Potential loss of mortgage interest tax deduction. Possible prepayment penalty.
If you are in a fixed-rate mortgage, many people remortgage at the end of every fixed term (usually every 2-5 years). You've found a better deal elsewhere (you may want to consult a broker about early redemption charges and exit fees)
Remortgaging to get a better interest rate
Introductory deals normally last for between two and five years. Once the deal ends, you'll probably be moved onto your lender's standard variable rate, which will usually be higher than other rates you might be able to get elsewhere.