Short-term or long-term fixed mortgage?

A fixed-rate mortgage is a mortgage where the interest rate is fixed for a pre-determined period. The lender cannot increase or decrease the interest rate during this time regardless of what happens to the economy or the Bank of England’s base rate of interest. At the end of the fixed-rate deal, the mortgage will switch to another type of mortgage, typically a variable-rate mortgage where the interest rate can change.

Many homeowners prefer the assurance that a fixed-rate deal offers as mortgage repayments can’t change during the fixed period. However, fixed interest rates are usually higher than the interest rates offered in variable mortgages.

Short-term vs long-term fixed mortgages

Fixed-rate mortgages can be categorised further into short-term and long-term deals. There is no strict definition of what deals are short-term and which ones are long-term. Industry professionals usually agree that a short-term fixed-rate mortgage is any deal that lasts for two years or less, whereas a long-term fixed-rate mortgage is any fixed rate that lasts for longer than two years. You can even find some fixed-rate mortgages lasting as long as five years or more.

Current considerations for a short-term fixed mortgage

Short-term fixed deals offer greater flexibility than long-term fixed rates because you can get out of the fixed interest rate at an early stage without paying expensive fees. On the other hand, fixed deals of two years or less will typically have a higher interest rate than longer-term fixed deals of up to five years.

In the current economic climate, a short-term deal might be appealing because it will allow you to secure a fixed rate for a set period, and then switch to a variable rate that has significantly lowered (due to expectations that inflation will decrease) compared to the variable rates currently on offer. However, nobody can make guarantees for the future so this tactic isn’t completely foolproof.

Current considerations for a long-term fixed mortgage

Although a long-term fixed-rate mortgage will tie you down to a fixed rate for a longer period, the interest rate offered will typically be lower than the rate on shorter fixed deals. This is due to expectations that inflation and therefore interest rates will fall over the next two years. Moreover, with this type of mortgage, you get long-term assurances of what your mortgage repayments will be.

Taking out a long-term fixed-rate mortgage might not be ideal in the current climate. If interest rates do come down significantly over the following years as predicted, you might be locked into paying a considerably higher rate of interest than other homeowners. Exiting this agreement for a lower rate will come at a cost because most of these mortgages have hefty early repayment charges. However, this is based on estimations only and a long-term fixed deal could still be the best option for your needs and preferences.

Get personalised and professional mortgage advice

Speak with a professional mortgage adviser to get personalised advice regarding your situation. Accredited mortgage professionals should be your first point of call when weighing up different types of mortgages, including fixed-term deals. Our team are ready to help you. Get in touch for support today.  

May 2023