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?
When comparing deals, you'll quickly notice that rates are a lot higher than they were a couple of years ago.
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.
Find out more:Are two or five-year terms most popular?
Five-year fixes are cheaper at the moment, but more people are choosing two-year deals.
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.
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.
undefinedThings 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.
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.
When to think about remortgaging
If you're in the last six months of your fixed term: If you've got more than six months left on your fixed term: You're on a standard variable rate (SVR) mortgage:Which? Limited is registered in England and Wales to 2 Marylebone Road, London NW1 4DF, company number 00677665 and is an Introducer Appointed Representative (FRN 610689) of the following:
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source https://www.which.co.uk/news/article/im-remortgaging-should-i-fix-for-two-or-five-years-aidCd0W82cJt