How long should you fix your mortgage for?

What does a fixed-term mortgage mean?

A fixed-term mortgage refers to a mortgage deal where the interest rate is fixed for a set number of years, known as the ‘initial term’. The rate will remain unchanged throughout that term, as will the monthly repayments, so borrowers know exactly what their mortgage outgoings will be and can budget accordingly.

How does a fixed-rate mortgage work?

Given that fixed-rate mortgages are exactly as the name implies – mortgages with a fixed interest rate – it’s thankfully a very simple process. Firstly, choose the initial term that’s right for you and you can then shop around for the best accompanying mortgage rates, after which your lender will tell you the expected repayments throughout the initial term.

Crucially, the rate and your subsequent repayments won’t change, no matter what happens to interest rates at large. This means that, if the European Central Bank were to increase the base rate during the fixed term of your mortgage, your rate wouldn’t be impacted (though likewise, if the rate were to be lowered, your rate wouldn’t drop in kind).

For how long can you get a fixed-rate mortgage?

Initial terms typically range from 2 to 30 years. 3 to 5 years are the most common, but the 30-year options will allow you to fix both your rate and your repayments for a decade.

It’s important to note that this only comprises the initial term of your mortgage. Standard mortgage terms can be upwards of 35 years or more, with only the first few years being fixed (though you can still remortgage and bring the overall term down, as is the case with all mortgage deals).

Should you fix your mortgage for 2, 3, 5 or 10+ years?

Knowing which option to go for isn’t always an easy decision, with a lot of it coming down to rate. 2-year fixed mortgages are traditionally the standard offering and usually boast the best mortgage rates, though the unpredictability of recent years means some borrowers may like to seek longer-term deals instead. 3, 5 and 10+-year mortgages offer longer repayment certainty, although given that longer terms typically result in higher mortgage rates, they’re usually more expensive.

However, there’s risk on either side of the scale. Opt for a 2-year deal and, if interest rates are substantially higher at the end of those 2 years, you’ll instantly be faced with far higher repayments, as opposed to with a longer-term deal which would of course protect you against those higher repayments for much longer. If the opposite were to happen and interest rates fell, you’d be able to benefit from those lower repayments far more quickly if you were on a 2-year deal, whereas those committed for 10 years could end up paying far more in interest than they’d otherwise have to.

As a result, some borrowers may like to go for the middle ground. 3 or 5-year deals offer a good compromise by protecting you from interest rate rises, whilst not locking you in for too long should rates go down.

Ultimately, it’s all about balancing the risks and factoring in your circumstances, preferences and budget to decide which term works best for you. This is also where the expertise of a broker like NFP can be invaluable, as they’ll be able to go into more detail and help you decide on the mortgage option that perfectly aligns with your needs.