Is a fixed mortgage of 5 years and more always the best option?

Fixed mortgages are all the rage right now due to very low interest rates, but are they always a good idea?

fixed mortgage
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You should be looking for a fixed mortgage with longest possible term if you want the best mortgage deal. This has been the mantra of mortgage searches for many, with five-year fixed mortgages now very common, and seven- or even 10-year fixed mortgages on the increase. Rumours about imminent interest rate increases continue to circulate in the media, and it seems that right now, while mortgage interest rates remain at a historic low, is the time to be fixing those rates for as long as you can. 

Is this really always the best approach, and what are the potential caveats to taking out a long-term fixed mortgage? These are the pros and cons.

Should I get a fixed mortgage in 2020?

There is a definite benefit of fixing your mortgage now: you'll know exactly what your repayments will be for the next two or five years – or longer, if you can get a longer fixed term, usually with a large deposit on your property. Bank of England base rate decisions are difficult to predict and, depending on the final outcome of Brexit negotiations, we may well see a rate increase. Taking out a Standard Variable Rate mortgage is always risky, especially in case there is a sudden sharp hike in interest rates. 

Having said that, the likelihood of a sharp interest increase is currently low. If anything, the Bank of England almost lowered interest rates at the end of 2019, only narrowly deciding to keep the base rate at 0.75 per cent in the end. If you do take out a five-year fixed mortgage and then interest rates go down even further a few months down the line, the deal that had seemed great technically won't be the best deal anymore. Most lenders will charge you an exit fee if you want to switch before your fixed mortgage is up – in many cases, this fee will be substantial, and, together with all the other mortgage fees and stamp duty, can become a serious obstacle to moving. 

A particular issue with long fixed terms for those planning to move up is the potential difficulty in borrowing more on the larger home they now want to buy. You might not get as good a rate on the extra amount you need to borrow, but because you're stuck with the same lender, your options will be limited. 

The solution? If you are planning to move up the property ladder soon, you can still take out a fixed term mortgage, but we'd recommend sticking to a two-year plan. If, on the other hand, you are currently in process of buying a family home you plan to stay in for the next decade, a five-year fixed term makes more sense. Alternatively, consider a tracker mortgage – you'll be able to take advantage of any further drops in interest rates while paying your lender a (pre-agreed) fee on top. 

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Want more tips on buying your first property? Read our guide to buying a house