If you are buying a property for the first time and are concerned about the fact that interest rates may soon be on the increase, a 5 year fixed rate mortgage may be a suitable product for you. The fact that the Bank of England base rate is now at an unprecedented low rate means that you should find a good deal at the moment on a 5 year fixed rate mortgage. The risk with choosing a fixed rate mortgage, especially a 5 year fixed rate mortgage, is that another mortgage product could offer a lower interest rate over this period. However, even if this does happen from time to time over the length of the 5 year fixed rate mortgage term, you do have the benefit of knowing exactly how much is going to leave your account each month. This means that you can budget much more effectively.
The interest rate that you receive on a 5 year fixed rate mortgage deal will depend on the amount that you borrow. Lenders calculate 5 year fixed rate mortgage interest rates according to the ‘loan to value’ (LTV) that you are borrowing, or rather the amount you intend to borrow compared to the overall cost of the property. The lower the amount you plan to borrow, the lower your interest rates will be, and the better the 5 year fixed rate mortgage deal will be overall for your finances. The best way of comparing two 5 year fixed rate mortgage deals is to use the APR or annual percentage rate of change. The APR takes the additional costs of a fixed rate mortgage into consideration, such as early repayment charges and the mortgage arrangement fee.
The Advantages of a 5 year fixed rate mortgage
- You can guard against large interest rate rises. With a 5 year fixed rate mortgage, you can guarantee that your payments are not going to rise in the near future, even if the economy rights itself in the next few years and interest rates increase again.
- You can budget effectively. It is impossible to effectively manage your finances if you are paying a different amount each month towards your mortgage repayments. With a 5 year fixed rate mortgage, you know exactly what you have to work with.
- Favourable interest rates. If you have some savings that you can use towards your deposit, you can receive a very competitive interest rate on your 5 year fixed rate mortgage deal. Even if you do not have much capital to invest, the low base rate means that you should be able to secure a good deal for a loan to value of up to 85% LTV.
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