Should You Choose a 2-Year or 5-Year Fixed-Rate Mortgage?
Should You Choose a 2-Year or 5-Year Fixed-Rate Mortgage?
If you're considering taking out a mortgage or nearing the end of your current fixed-rate deal, you'll no doubt have noticed plenty of conversation about mortgage rates.
Choosing between a 2-year or 5-year fixed rate mortgage is one of the key decisions.
Here, we’ll explain the differences and help you decide what might work best for your situation.
What’s a Fixed-Rate Mortgage?
A fixed-rate mortgage locks in your interest rate for a set period of time. This means your monthly payments stay the same no matter what happens with wider economic factors, like the Bank of England’s Base Rate.
A 2-year deal fixes the rate for 2 years, while a 5-year deal does so for 5 years.
Recently, more people are leaning towards 5 year fixed deals because they’re cheaper than shorter-term options, which is a shift from how things used to be!
Why Are 5-Year Fixed Rates Cheaper Right Now?
Starting in late 2022, 5-year fixed mortgages became cheaper than 2-year ones. The reason? Lenders expect interest rates to fall in the future, and they factor this into their pricing.
This means monthly payments on 5 year deals are currently lower than those on 2-year mortgages.
2-Year Fixed-Rate Mortgages
Pros:
Short-term commitment (just 2 years)
You can switch to a better deal sooner if rates drop
Cons:
Currently more expensive than 5-year deals (by about 0.5%)
Higher monthly payments
5-Year Fixed-Rate Mortgages
Pros:
Stability for 5 years—your payments won’t change
Lower interest rates right now, meaning cheaper monthly payments
Cons:
Locked in for 5 years—if rates drop, you miss out unless you remortgage and pay penalties
For example, with a 5-year deal being 0.5% cheaper, you’d save around £27 per month for every £100,000 of your mortgage balance
What’s Best for You?
The choice depends on your situation. Go for 2 years if you expect rates to drop soon and want flexibility. Choose 5 years if you want lower payments and more long-term stability.
Need more tailored advice? You can always chat with a mortgage broker to figure out what works best for you. You can book a call to speak to our recommended mortgage adviser on a date and time to suit you.
Another Option - Tracker Mortgages
If you’re open to something different, consider a tracker mortgage. These follow the Bank of England's Base Rate, so your monthly payments go up or down alongside it.
Pros:
If rates fall, your payments drop too
Cons:
If rates rise, your payments will increase
On average, a 1% change in the Base Rate impacts your payment by about £54 for every £100,000 of mortgage balance.
Final message from the team
When deciding between a 2-year or 5-year fixed-rate mortgage, the key difference is the duration your interest rate is locked in.
A 2-year deal provides short-term stability and flexibility, especially if rates drop soon, but comes with higher monthly repayments compared to current 5-year rates.
Meanwhile, 5-year fixed mortgages offer longer-term stability and lower monthly repayments but lock you in for a longer period, meaning you'll miss out on rate drops unless you pay for early remortgaging.
Consulting a mortgage broker can help you make the best decision.
Need help deciding? You can book a call with our recommended mortgage adviser here. Get tailored advice based on your personal circumstances.
Please note: SBK is not authorised to give financial advice; the information and opinions provided in these articles are not intended to be financial advice and should not be relied upon when making financial decisions. Please seek advice from a specialist mortgage provider.
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