Choosing a deal
2 year or 5 year fix? How to compare them properly
Most mortgage decisions start with one question: fix for two years or for five? The rates are often close, so it is tempting to pick the lower number and move on. But the two deals are not the same product, and comparing them on rate alone misses most of what matters.
The headline rates
Take a £240,000 repayment mortgage over 25 years, with two illustrative deals that both charge a £999 fee:
| Deal | Rate | Monthly | Payments + fee over the deal |
|---|---|---|---|
| 2 year fix | 5.30% | £1,445.28 | £35,686 over 2 years |
| 5 year fix | 5.20% | £1,431.12 | £86,866 over 5 years |
The 5 year deal is about £14 a month cheaper. But the "cost over deal" figures cannot be compared directly, because one covers two years and the other covers five. To compare them fairly you have to ask what happens with the 2 year deal after it ends.
What happens after two years
When the 2 year fix ends you still owe about £230,268. You will almost certainly remortgage, which usually means paying another product fee, at whatever rates are on offer in two years' time. Nobody knows what those will be, so here are three possibilities for the next three years:
| Rate for years 3 to 5 | New monthly payment | Total paid over 5 years |
|---|---|---|
| Rates fall to 4.30% | £1,315.17 | £84,031 |
| Rates stay at 5.30% | £1,445.28 | £88,715 |
| Rates rise to 6.30% | £1,581.71 | £93,626 |
| 5 year fix at 5.20% | £1,431.12 throughout | £86,866 |
The totals include both £999 fees for the 2 year route. If rates fall by a full percentage point, the 2 year route comes out about £2,800 ahead. If they stay where they are, the 5 year fix wins by about £1,800, about half of that because you only pay one fee. If they rise by a point, the 5 year fix is about £6,800 cheaper.
The real choice is not "which rate is lower" but "how much certainty do I want, and what is it worth to me?"
Things the numbers do not show
- Early repayment charges. Leaving a fixed deal early usually costs a percentage of the loan, often several thousand pounds. A 5 year fix ties you in for longer. If you might move home, sell, or come into money, check the charges and whether the mortgage can be moved to a new property (called porting).
- Overpayments. Most deals let you overpay around 10% a year without a charge. If you plan to pay down a lot, a shorter fix gives you a free window sooner.
- Your budget. If a jump of £136 a month in two years' time would cause real problems, the predictability of a longer fix has value beyond the arithmetic.
- Your loan to value later. Over two years you pay down some of the loan, and if the property value rises you may move into a lower LTV band with cheaper rates when you remortgage. That can help the 2 year route.
Comparing on Excelergy Mortgages
Use the Term filter to look at 2 year and 5 year deals separately. "Cost over deal" is a fair comparison within each group. Then use the Calculate button on a 2 year deal to see what you would owe when it ends, and try a few rates in the calculator to see how your payment could change.