Best Length of Mortgage Deals
Unless you have a poor credit history, you should never pay a standard variable rate (SVR) of interest. This is because virtually every mortgage lender also offers a range of far cheaper fixed interest and discounted variable rate deals.
These can last for anything from a few months to your full mortgage term, but the most popular are usually between two and five years. At the end of this time, your lender will move you onto its SVR.
It’s up to you to decide what length of deal best suits your needs.
Here are some things to take into account when deciding
The problem with very short deals
The cheapest fixes and the biggest discounts generally last less than two years.
You might be attracted to these if you are very short of money, but they are rarely a good idea.
They usually come with an extended redemption penalty that ties you to the lender’s standard variable rate for several years after the special deal has ended, often more than cancelling out your early savings.
The problem with very long deals
If you are looking for certainty about the level of your future payments, you may be drawn to a long-term fix of, say, ten or more years.
If interest rates rise over this period, it could turn out to be a very shrewd move, but if they fall, you could end up seriously overpaying compared to other borrowers.
But, since you will probably face a hefty early redemption penalty to get out of the deal, it may not be worth remortgaging to a cheaper deal.
So unless you have an infallible crystal ball, you might be better to copy the bulk of borrowers who have gone before you and opt for a medium-term deal.
The benefits of two to five-year deals
Deals of this length offer a reasonable balance between stability and flexibility.
Opt for the shorter end of the scale, and you will face the cost of remortgaging to avoid paying you lender’s standard variable rate sooner.
Opt for the longer end, and you won’t have to remortgage so often, but you will be tied down for longer.
At the end of the day, it’s a matter of personal choice.