Get the shortest loan term you can afford A shorter loan term (for example, 20 years) means higher repayments, but you'll pay less in interest. A longer loan term (for example, 30 years) means lower repayments, but you'll pay more in interest.
Many people choose short term two-year fixed rate mortgages because they provide them with greater flexibility than if they were locked in to a five-year deal. For example, if interest rates fall over the next couple of years, you'll be free to remortgage to a lower rate as soon as your deal finishes.
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.
In general, the longer your loan term, the more interest you will pay. Loans with shorter terms usually have lower interest costs but higher monthly payments than loans with longer terms.
One of the main drawbacks is that it can increase your financial risk and cost of capital. Short-term financing usually has higher interest rates and fees than long-term financing, and it exposes you to the risk of refinancing or rollover.
A short-term mortgage allows you to repay your loan faster. This means you can own your property outright much quicker than if you take out a standard or long-term mortgage. It also frees up your finances much sooner so you no longer have to worry about making monthly repayments.
Key Takeaways. Most homebuyers choose a 30-year fixed-rate mortgage, but a 15-year mortgage can be a good choice for some. A 30-year mortgage can make your monthly payments more affordable. While monthly payments on a 15-year mortgage are higher, the cost of the loan is less in the long run.
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.
The main benefit of five year fixed rate deals is the security that comes with a set in stone interest rate, allowing you to budget and not to worry about how much you're paying each month.
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.
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.
Check when your current fixed-rate mortgage deal ends
If you take no action, you are automatically moved over to your lender's standard variable rate. Make sure you are aware of how much you currently pay each month, which will help you work out how much extra you need to budget for when moving to another deal.
A potential downside to fixed-rate mortgages is that when interest rates are high, qualifying for a loan can be more difficult because the payments are typically higher than for a comparable ARM. If broader interest rates decline, the interest rate on a fixed-rate mortgage will not decline.
You can remortgage a fixed-rate mortgage early:
But expect to pay exit fees and potentially foot other costs as well. This is likely to be the case regardless of whether you're remortgaging with your current lender or hoping to switch to another one.
You shouldn't necessarily switch to a fixed rate just because your variable rate has risen once or twice, especially if you've been stress tested and your finances can handle these moderate increases. Switching to a fixed-rate mortgage makes the most sense if: Variable rates are expected to increase rapidly.
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.
This might be two years, three years or even ten, but at some point it does come to an end and the interest rate on your mortgage is likely to increase considerably as you are switched over to the lender's standard variable rate.
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.
If you plan to live in the home for more than a few years and are able to make the higher monthly payment and pay the closing costs, it may be worth it to refinance. Refinancing to a 15-year mortgage will help you build equity quicker and save you over $80,000 in interest.
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.
Some people get a 30-year mortgage, thinking they'll pay it off in 15 years. If you did that, your 30-year mortgage would be cheaper because you'd save yourself 15 years of interest payments. But doing that is really no different than choosing a 15-year mortgage in the first place.
One of the main disadvantages of a longer-term fixed rate is that your mortgage payments may be higher, at least initially. Choosing a seven or ten-year fix means you'll generally pay a small premium for the stability and security of a long-term deal.
These loans are considered less risky compared to long term loans because of a shorter maturity date. The borrower's ability to repay a loan is less likely to change significantly over a short frame of time. Thus, the time it takes for a lender underwriting to process the loan is shorter.
If you are able to pay off the loan early, though, your lender could charge you a fee. Higher interest rates – Lenders see long-term loans as risky investments. While they will have a stream of income for a while from the repayment, there is always a risk the business may not work out and go under.