5 Year Fixed Rate Mortgages

As it has become customary to shop around online for a new mortgage deal every few years, 5 year fixed rate mortgages are seen as a good compromise for consumers who do not want to be tied in for too long. 5 year fixed rate mortgage lenders offer a good introductory rate to attract new customers, and after the end of the 5 year fixed rate mortgage term, the interest rate will revert to the lender’s standard variable rate (SVR). The SVR is different from lender to lender, but it will usually be less competitive than the 5 year fixed rate offer, and therefore when you come to the end of your 5 year fixed rate mortgage, you should at least look around to see what other providers are offering.

If you are ‘tied into’ a 5 year fixed rate mortgage deal, your lender will usually apply an early repayment charge if you try to pay the loan back any faster than you had previously agreed in the mortgage contract. Therefore, if you are in a position to pay back the money earlier than you had originally thought, it would make better financial sense to put the additional funds into a high-interest savings account until your 5 year fixed rate mortgage term has elapsed, after which time you would be free to either reevaluate the loan with your existing provider or look around at other 5 year fixed rate mortgage deals with other providers.

5 Year Fixed Rate Mortgages: The Facts

• Win-win situation for you and your lender:  Lenders prefer to keep their customers for longer, whilst you want to have the option to improve your deal after a few years.  5 year fixed rate mortgages offer a good compromise; you commit to stay with the lender for a relatively long period, and in return, the lender provides you with a more favourable interest rate.
• Whatever happens with the economy over the next 5 years, you can be certain that 5 year fixed rate mortgages will not change.  In the current climate, the attraction of having peace of mind has made this product increasingly popular.
• You are in no danger of being caught out by interest rate rises.  Although in theory those with 5 year fixed rate mortgage deals could lose out on price, it’s more likely that over the next few years interest rates will continue to rise, meaning more money in your savings account.