How long should I fix my mortgage for?
Whether you should fix your mortgage for 2 or 5 years depends on you and your individual circ*mstances. Fixing your mortgage for 2 years can give you certainty and stability in the short-term, and can also be the right choice if you only plan on staying in your home for a few years.
The average two-year fixed rate mortgage is currently 5.93 per cent, according to Moneyfacts. That compares to 5.54 per cent for five-year fixes. Those with the biggest deposits or with larger equity stakes in their home can also do much better when fixing for five years, rather than two years.
Forecasters believe mortgage rates may fall further in 2024, meaning it may be wise to opt for a variable rate or tracker mortgage for the time being, and fixing your mortgage once rates do slide. For a more accurate steer, it's a good idea to engage a mortgage advisor when you're ready to choose a mortgage.
3 or 5-year deals offer a good compromise by protecting you from interest rate rises, whilst not locking you in for too long should rates go down. Ultimately, it's all about balancing the risks and factoring in your circ*mstances, preferences and budget to decide which term works best for you.
However, with shorter-term products, it's important to consider the extra fees involved. Taking a longer-term fixed product means you can stretch these costs over a more extended period. Ultimately, the decision between a 2- or 5-year fixed rate mortgage will depend on your personal circ*mstances and financial goals.
Mortgage rates are expected to decline later this year as the U.S. economy weakens, inflation slows and the Federal Reserve cuts interest rates. The 30-year fixed mortgage rate is expected to fall to the mid- to low-6% range through the end of 2024, potentially dipping into high-5% territory by early 2025.
Economists do expect rates to gradually decrease this year, though. Forecasts from both Fannie Mae and the Mortgage Bankers Association predict the average 30-year rate will be at 6.4% by the end of 2024.
Here's where three experts predict mortgage rates are heading: Around 6% or below by Q1 2025: "Rates hit 8% towards the end of last year, and right now we are seeing rates closer to 6.875%," says Haymore. "By the first quarter of 2025, mortgage rates could potentially fall below the 6% threshold, or maybe even lower."
On 21 March 2024, the Bank of England held the base rate at 5.25% for the fifth time in a row. Financial markets are currently predicting the first cut in interest rates will be in June 2024, falling to around 3% by the end of 2025, according to the latest forecasts from Capital Economics.
If you have a low loan-to-value (the size of your mortgage as a percentage of your property value) then you could benefit from fixing, as you will be able to secure a lower fixed-interest rate than someone with a higher loan-to-value. The longer your fixed term, the longer you are locked into an interest rate.
Will mortgage ever go down to 3?
It's possible that rates will one day go back down to 3%, though if current trends hold that's not likely to happen anytime soon.
Current mortgage interest rate trends
The average 15-year fixed mortgage rate similarly grew, going from 6.16% to 6.39%. After hitting record-low territory in 2020 and 2021, mortgage rates climbed to a 23-year high in 2023. Many experts and industry authorities believe they will follow a downward trajectory into 2024.
The longer the fixed term, the higher the risk that average rates fall below yours and you pay more than you'd otherwise have to, you also lose some flexibility. Based on the current economic predictions for 2024, a 2 year fixed rate could be a good idea if you are able to lock in a good rate before the end of 2023.
Potential cost savings: Variable rate mortgages offer the possibility of reduced total mortgage payments if interest rates remain low over an extended period. This could result in interest rate savings compared to a fixed rate mortgage.
- Explore your options early. Look at a new mortgage deal as early as you can with your lender, or explore other options.
- Check you can afford it. ...
- Budget wisely. ...
- Protect your home. ...
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The most common terms are two years fixes and five year fixes, however, an increasing number of people are fixing for 10 years or more. Short term fixed-rate mortgage deals ensure that you don't miss out on lower rates for too long, should they fall suddenly. But they also mean remortgaging more frequently.
Mortgage giant Fannie Mae likewise raised its outlook, now expecting 30-year mortgage rates to be at 6.4 percent by the end of 2024, compared to an earlier forecast of 5.8 percent.
Mortgage rates will decrease in 2024, and buyers will pay fewer discount points. By summer, first-time home buyers should expect current mortgage rates near 4.25 percent.
Legally speaking, there's no limit to how many times you can refinance your mortgage, so you can refinance as often as it makes financial sense for you. Depending on your lender and the type of loan, though, you might encounter a waiting period — also called a seasoning requirement.
Average fixed interest rates in April 2024
1 year fixed: 6.47% p.a. 2 year fixed: 6.34% p.a. 3 year fixed: 6.28% p.a. 4 year fixed: 6.46% p.a.
How high could interest rates go in 2025?
The median estimate for the fed-funds rate target range at the end of 2025 moved to 3.75% to 4%, from 3.5% to 3.75% in December. For the end of 2026, the median dot now shows a target range of 3% to 3.25%, versus 2.75% to 3% three months ago.
Mortgage rates are going to stay above 6% through 2025, according to estimates from Goldman Sachs. Goldman said the decline in mortgage rates should offer marginal improvements in housing affordability. The average 30-year mortgage rate fell to 6.62% last week after hitting a cycle-high of 7.8%.
For people looking to buy a home, a recession can bring some advantages. When the economy is not doing well, home prices often drop, which can be good news for those who want to find a good deal; plus, during recessions, mortgage rates usually stay low, meaning buyers can get a home with lower monthly payments.
Despite mortgage rates remaining stubbornly high, most housing market experts expect them to recede over 2024, assuming the Federal Reserve acts on its signaled interest rate cuts. However, whether mortgage rates fade enough to create a meaningful shift in home affordability remains uncertain.
2025/2026 UK Interest Rate Predictions
Highest Projection for Q4 2025: The Bank of England predicts interest rates in 2025 will stabilise at 3.4%. Lowest Lowest Projection for Q4 2025: 30 Rates anticipates a significant drop to 1.75%. Highest Projection for 2026: Money To The Masses sees rates at 3.74%.
