“I am buying a home and want to fix my mortgage, but I am not quite sure how long I should do it for. Some people have told me to go for a cheap two-year fixed rate, while others say five years is the ideal time and I have even seen ten-year fixes. What should I think about when deciding how long to fix my mortgage?”
There are several things to consider when looking at the length of time to which you can fix your mortgage. Of course cost is an important driver, but whilst a two-year fixed will always be the cheaper option initially, it may work out more expensive in the long term. Firstly there are potential remortgage costs in two years time, plus the possibility that rates will have risen by then which means any new product will be more expensive.
When this is taken into account, a 5-year fixed might actually have worked out cheaper over all.
Another thing to bear in mind is any expected potential change in circumstances. For example, do you expect to actually have outgrown the property in 2 or 3 years’ time, start a family or even change a job that would impact your ability to obtain a new mortgage at that time? How much flexibility you need is something to consider.
Alternatively, do you expect to come into some money elsewhere that would mean in 2 years you want to pay off a large sum? How long you see yourself staying in the property is a key consideration and whilst the majority of mortgages these days are portable, i.e. you can take them on to another property; this limits your choice at the time to the same lender who may no longer be the most competitive.
Attitude to risk where the monthly payments are concerned is a huge driver. There is no point taking the cheapest short-term mortgage when longer term you are going to suffer sleepless nights worrying about the fact that interest rates have risen. Those who have bought a longer term home to raise children or set down roots may well feel much more relaxed knowing that they can forget about their mortgage payments for 5 or even 10 years without worrying what happens to interest rates outside.
In reality, there is no right or wrong, only what you are comfortable with taking into account your own level of affordability and likely future changes. Trying to predict and play the market is fraught with dangers, especially when it is with your own home. Only with hindsight can you make an informed decision.
If security is what you are after then some of the 5-year fixes around at the moment are as low as they have ever been and represent excellent value. If you decide which option you are most comfortable with then stick with it, I believe you will happily look back and know that you made the right decision.