As the name suggests, five year fixed rate mortgages want the borrower to pay the fixed monthly repayments for a period of five years. These are quite popular with the borrowers in the UK as they don’t need to face the variable rate repayments and can easily plan their finances for a consecutive five years. As the interest rate remains the same for the five years, the borrowers are safe from any bitter surprises from the lender.
Clearly, this is an easy bet considering the fact that you can do financial planning for the next five years as well as be prepared for the monthly repayments. Also, when you choose this kind of mortgage deal, you have ample time for repayments and you do not have to worry about the change in the interest rates. Overall, it gives you a peace of mind and helps you make strategies for the repayments.
Things to consider after five years:
Once the borrower has finished their repayment for five years, the remaining payments will certainly not be fixed. You will then need to repay according to the lender’s Standard Variable Rate (SVR), which can be a few percentage above or below the fixed rate. Well, if you are lucky then the SVR may be lower than the fixed rate and so, you can easily repay the remaining money. If not then you can discuss with your lender about other options to make things work out in your favour.
The drawback of the five year fixed rate mortgage is that you have to face a high administration fee. Normally, you need to pay the mortgage arrangement fee which depends on the number of years for which the arrangement is made. It is higher for longer periods, so a five year arrangement fee is more expensive than a two year fixed rate repayment scheme. So, you need to keep this in mind and plan accordingly.
To sum up, a five year fixed rate interest plan is beneficial when you want peace of mind. Many borrowers in the UK choose this option and if your circumstances allow you to do so then going for this way of repayment would not disappoint you.
If you want to know more about mortgages then have a look at our mortgage guides which give detailed information about everything related to mortgages. You can also check our website freepricecompare.com or call our expert team of mortgage advisers on 08008807656.