There are a wide variety of mortgage options available but you can generally split the types into two – fixed rate mortgages and variable rate mortgages. With fixed rate mortgages, the interest rate stays the same for the entire term of the mortgage loan. This is unlike variable mortgages where the interest rate changes monthly, going up or down depending on the influence of market forces.
Before you decide if fixing a 5 year mortgage is the right option for you, there are some things you need to take into consideration. For instance, the shorter the term of a mortgage, the larger your monthly payments will be. This means with a five year mortgage, your monthly payments will be less than that of a one year mortgage but more than that of a ten year mortgage. This means your lender will require that your income be high enough to facilitate your monthly repayments, which makes lower income earners less likely to qualify for a five year mortgage.
Other factors to take into consideration include:
- With a five year mortgage, your interest rate is fixed for the five year period which means you know exactly how much you are liable to pay every month. This predictability makes for easier financial planning and better ease of mind. But in circumstances where interest rates generally drop below your fixed rate, you will find yourself stuck paying more interest than you should. This is why it is best to enter a fixed mortgage loan when interest is as low as possible.
- Five year mortgages typically come with lower rates as compared to a 15- or 30-year mortgage. Said difference in interest rates will greatly influence how much you end up repaying the bank. This means the cost of a five-year loan compared to a loan with a longer term will be in your favour with a 30 year loan possibly costing almost double what you’d pay under a five year mortgage. To help you calculate the cost of a loan, many mortgage providers offer mortgage calculators.
Why you should consider taking a 5 year mortgage?
If you are certain that your financial condition will not change for the worst during the term of a 5 year mortgage, then such a loan might be for you. 5 year mortgages are popular among UK homeowners because of their predictability, convenience and relatively little risk.
If you can secure a low interest rate for your five year mortgage, the merrier as this will free up more money every month that you can put into savings or other investments. At least with a five year mortgage, you know that for the duration of its term the interest rate will definitely remain unchanged.
If you plan on buying a home to retire to or live in for years to come, then a five year mortgage could be right for you. Just bear in mind that each individual’s circumstance is unique and it pays to consult a mortgage expert before making your final decision
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