A five year fix could work out cheaper than a two year one
Fixed rate mortgages for short periods have become popular in the UK over recent years. The Chancellor of the Exchequer, Alistair Darling, is pushing for consumers to consider very long term fixed rate deals, such as those for 20 and 25 years in order to increase security and peace of mind. However, lenders have stated that most consumers in the UK do not want to tie themselves into a fixed rate for such a long period, and prefer the more traditional two and three year fixed rate terms.
However, industry officials are now stating that for some consumers a slightly longer term fixed rate deal for five years could actually prove more cost effective than the two year fixed rate over the longer term, and could save some consumers up to £5,500. Although competitive two year fixed rate mortgages charge a lower rate of interest than five year fixed rate deals, the arrangement fees on two year deals is a lot higher, coming in at around £1500 compared to around £1000 or under for a five year deal.
For those that decide the keep remortgaging to another fixed rate deal over a period of ten years, the savings can be huge. On a two year fixed rate deals remortgaging over ten years would cost around £7500 in arrangement fees. However, with a five year fixed term deal the arrangement fees would only come to around £2000 or under for that same period, saving the consumers a massive £5,500 in arrangement fees alone.
There are some competitive deals available on five year fixed rate mortgages, and consumers that want to consider this slightly longer term are advised to compare different five year deals from a range of providers in order to get the best one for their needs.
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