2 year Vs 5 Year fixed rate mortgage secrets- What NO ONE is talking about

How is the mortgage industry doing right now?

It’s busy—especially with the new 10% deposit products for first-time buyers.

The upcoming stamp duty holiday deadline (31st March) has caused a last-minute rush, with many trying to complete before the cut-off.

What’s the main difference between a two-year and a five-year fixed-term mortgage?

Interest rates: Five-year deals usually have slightly higher rates, about 0.5% more.

Example: On a £500,000 mortgage, that’s an extra £2,500 per year, or £5,000 over two years.

Loan outstanding: After two years, you owe less on a two-year deal than on a five-year deal, since higher rates mean slower repayment.

Product fees: Typically around £999–£1,000, which needs to be prorated when comparing costs.

When you calculate true cost (interest + balance outstanding + fees), two-year deals often save more money.

So does that mean two-year deals are better in the long run?

In many cases, yes—especially on larger loans.

I often advise clients: take a two-year deal and make overpayments to reduce your mortgage faster.

However, the best option still depends on individual circumstances and future plans.

Which option offers more flexibility?

Two-year deals are generally more flexible.

Life can change ckly (think COVID-19)—a shorter term makes it easier to adjust.

Five-year deals lock you in for longer, making it harder to change plans.

What about early repayment charges (ERCs)?

On a two-year deal, ERCs are usually about 2% of the outstanding balance.

On a five-year deal, ERCs can be 5% initially, reducing by 1% each year.

Example: With a £500,000 mortgage—

• Breaking a two-year deal might cost £10,000.
• Breaking a five-year deal could cost £25,000 in year one.

Always consider your future plans before locking into a deal.

Does loan-to-value (LTV) make a difference?

Yes.

High LTV (e.g., 90%): First-time buyers with small deposits pay higher rates. Locking in a five-year deal at 90% LTV can be costly, as in two years their LTV may drop to 85% (with lower rates).

Low LTV (e.g., 60%): Rates are already stable, so the difference between 2- and 5-year deals isn’t as significant.

How does the economy affect mortgage choice?

Always watch the bigger picture.

If interest rates are falling, avoid locking into a long-term deal.

If rates are expected to rise, a five-year deal might protect you.

Remember: Banks set deals based on forecasts—if there isn’t much gap between 2- and 5-year rates, it’s likely banks expect stability.

How is COVID affecting mortgage rates?

Higher LTV products are more expensive right now.

Low LTV and remortgage rates are relatively better.

Banks are being more cautious with lending during uncertainty.

Audience

(Amy) If I find a mortgage deal elsewhere, can you match it?

FD: Often yes. As a whole-of-market broker, we can access deals from any bank. Sometimes we can even offer better options by focusing on true cost and personal circumstances.

(David) I want to sell my house before the stamp duty holiday ends. Is there enough time?

FD: Likely yes—but act immediately. Solicitors are under heavy pressure as everyone is rushing to complete before the deadline.

If I haven’t completed by the deadline, do I have to pay stamp duty?

FD: Yes. If completion doesn’t happen before the cut-off date, stamp duty applies—unless the government extends or changes the rules.

I’m self-employed, my fixed rate ends next year, but my accounts look bad due to COVID. What should I do?

Speak to a broker now, not two months before expiry.

Planning early gives you more options (e.g., adjusting dividends, using reserves).

There are always some solutions, but timing is critical.

Does it cost anything to leave a mortgage early?

FD: Usually yes—if you’re on a fixed rate, you’ll face early repayment charges (ERCs).

Some tracker/variable deals don’t have ERCs.

Always check your documents to know the exact penalty.

(Anna) I’m worried I might lose my job due to COVID. What should I do about my mortgage?

If your deal ends in the next 6 months, talk to a broker now.

If redundancy has been formally announced, you must disclose it to the bank.

If it’s just a concern, lock in a deal early to secure your mortgage.

Key Takeaways

• Two-year deals often save more money and offer more flexibility.
• Five-year deals may be useful for stability, but come with higher penalties and less flexibility.
• Always consider your loan-to-value, economic outlook, and personal plans.
• Above all: Speak to a mortgage advisor—every case is different.

Important Reminder

These points may not apply to all borrowers.

Mortgages are secured against your home. Your property may be repossessed if you do not keep up with repayments.