Mortgage rate periods, 2 year vs 5 year fixed

The basics

What is a rate period?

A mortgage rate period (also called the deal period or initial period) is the length of time your chosen interest rate applies before reverting to the lender's Standard Variable Rate (SVR). The SVR is typically higher than product rates, so most borrowers remortgage at the end of their deal period.

The most common rate periods are 2, 3, 5, and 10 years, with 2-year and 5-year being the most popular. Your choice affects both your monthly payment and how often you need to remortgage.

2-year vs 5-year

2-year vs 5-year fixed

The choice between a 2-year and 5-year fixed rate is one of the most common decisions our clients face. Here's how to think about it:

• 2-year fix pros:lower initial rate, review sooner, useful if you expect rates to fall or circumstances to change
• 2-year fix cons:more frequent remortgage costs, more uncertainty over medium term
• 5-year fix pros:certainty for longer, fewer remortgage costs over time, popular with lenders for better rates
• 5-year fix cons:early repayment charges if you need to exit early, may miss out if rates fall significantly

Early repayment charges

Early Repayment Charges (ERCs)

Early Repayment Charges apply if you repay your mortgage or switch deals before the end of your rate period. They're calculated as a percentage of your outstanding balance and typically reduce over time.

• Typical ERCs range from 1-5% of balance
• Often reduce each year of the deal
• Apply on part or full overpayment above allowance
• Most lenders allow 10% overpayment p.a. ERC-free
• Waived in some circumstances (e.g. porting)
• Some tracker products have no ERC at all