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I’m remortgaging: should I fix for two or five years?
Five-year fixes are cheaper, but shorter deals are in higher demand
When you come to remortgage, choosing between a two-year and a five-year fix is likely to be one of your biggest decisions.
And it's a tricky one – none of us have a crystal ball, and while there are hopes that mortgage rates might drop soon, the events of the last couple of years prove you can never be 100% sure what will happen to the economy.
Read on for expert advice on choosing a mortgage term, including how rates affect monthly repayments and when you should start shopping around.
What’s happening to mortgage rates?
If you're coming to the end of your fixed-rate mortgage term, it's important to find out what kind of rate you'll be eligible for when you move to a new deal.
When comparing deals, you'll quickly notice that rates are a lot higher than they were a couple of years ago.
Costs vary, but if you're looking for a two-year fix, the cheapest deals currently range from around 4.7% to 5.3%, depending on your loan-to-value (LTV). Five-year fixes are a little cheaper, with rates around 4.3% to 5%.
If you took out your current mortgage two years ago, it's likely that these rates will be around double what you're currently paying.
If you're worried about being able to afford the rise in repayments, see our guide on what to do if you can't pay your mortgage.
- Find out more: best mortgage deals for June 2024
Are two or five-year terms most popular?
Five-year fixes are cheaper at the moment, but more people are choosing two-year deals.
This is because of expectations that the Bank of England will soon reduce its base rate, which has an impact on the cost of mortgages – so homeowners are hoping that rates will be lower in a couple of years. However, this is by no means certain.
The chart below shows levels of demand for different deal durations, using data from Moneyfacts. It shows that just under 60% of people remortgaging are searching for a two-year deal.
When will mortgage rates fall?
Nicholas Mendes of the mortgage broker John Charcol says:
‘There's a consensus that the first base rate cut could happen in August or September, but the exact timing is uncertain because inflation is proving to be quite stubborn.
‘While recent figures show headline inflation has dropped, core inflation remains at 3.5%, down from 3.9% in April, indicating continued pressures. Wage growth also remains elevated.
‘Fixed mortgage rates have been on the rise, with current rates for two-year and five-year deals now higher than they were at the beginning of the year.
‘Lenders are frequently adjusting rates, but the overall outlook suggests only a modest reduction by the end of 2024, with more substantial drops not expected until next year.’
How does the term I choose affect my repayments?
The difference in cost between a two-year and a five-year fix will depend on your individual situation, including how much you're borrowing and over how long.
To give you an indication of how rates affect repayments, we've worked out the estimated monthly costs of the cheapest two-year and five-year deals at four different LTV levels.
Our calculations assume you're borrowing £200,000 over a 25-year term. The results show that in these specific scenarios, you'd pay around £45-65 more a month for a two-year fix.
| Loan-to-value | Monthly payment (two-year fix) | Monthly payment (five-year fix) | The cost difference |
| 60% | £1,148 | £1,084 | £64 |
| 75% | £1,154 | £1,108 | £46 |
| 85% | £1,233 | £1,178 | £55 |
Is it worth fixing for longer?
David Hollingworth of the mortgage broker L&C Mortgages says:
‘Aside from price, there are some other advantages to fixing for longer. We've been in a period of huge uncertainty, and this means some borrowers will want surety about their rate for a longer period.
‘Others may want to avoid paying fees to remortgage twice when they could just lock into a lower rate now. However, fees can often be avoided by shopping around for the right fit.
‘It's easy to focus on two and five-year deals, but there's a whole host of fixed-rate options available, including deals that let you fix for 10 years or even the whole life of the mortgage.
‘For those that feel two years may zip by, but five years is too long to commit for, a three-year fix may be a good compromise.’
Things to consider before choosing a mortgage term
Your future plans
If you're thinking of moving home in the next five years, you might be better off taking out a shorter-term fix.
Otherwise, you could be on the hook for early repayment charges (ERCs). These are charged as a percentage of the mortgage balance, and can run to thousands of pounds.
Most lenders will allow you to 'port' your mortgage to another property, but this isn't always straightforward or cost-effective.
Your attitude to risk
If you take out a two-year fix, you'll be able to start shopping around for a new deal after 18 months.
If you're comfortable gambling on what happens to the mortgage market and are the type of person who is on the ball when it comes to finding the best deals, a two-year deal will give you that flexibility.
However, if you're more risk-averse and want greater certainty, consider fixing for longer.
See our remortgaging guide for more detailed information on the process of switching mortgage, including how your property is valued and the fees involved.
When to think about remortgaging
- If you're in the last six months of your fixed term: start shopping around for a new deal now. You can get a quote from your existing lender, but you may be able to get a better rate by speaking to a mortgage broker, who can look at all available deals on the market.
- If you've got more than six months left on your fixed term: don't think about remortgaging just yet. If you switch deals mid-term, you'll need to pay ERCs.
- You're on a standard variable rate (SVR) mortgage: it's likely that you're paying more than you need to. Lender SVRs currently average above 8%. If you're able to switch to another deal, do so as soon as you can.
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