2yr vs 5yr fixed mortgage 70% LTV

Dinosaur35 · 1 April 2015 at 8:49AM

Hi everyone,

I would welcome your views on whether we should opt for a 2yr or 5yr fixed based on the current views of the market. I've given a brief overview below:

We are upsizing from 1 bed to 4 bed house with a LTV of 70%. We've recieved a mortgage offer on a 2yr fixed at 1.69%, this would actually be 22 months due to a delayed completion and product expire of May 2017. Our lender has advised that we can switch product before exchange and there is a 5yr fixed available at 2.79% with exactly the same arrangement fees, but for first 2 years would be an extra £155 per month or £3,400 over the 22 month term we would have the 2yr fixed product for. I know mortgages are about the long term view and we have no intention of moving again anytime soon, but £155 a month difference seems like a lot to pay out over the next 2yrs for 5yr peace of mind.

I fully appreciate that no one has a crystal ball and rates are only likely to go one way, but there are mixed views on whether we will see any significant changes in 2 yrs time. Based on some rough calculations of the loan value after two years and having to pay again to remortgage, i've calculated that if we stick with the 2yr fix we would be £2,200 better off in 2 yrs even if rates increased to 3.5% and at 4% would be approximately £360 worse off compared to the 5yr product over 5 years.

Any advice would be appreciated.

dimbo61 · 1 April 2015 at 9:00AM

Would your LTV be 65% or lower in 22 months if you overpaid by £155 a month or more.
What is the local housing market like ?
I paid 4.72% for five long years BUT it was an offset mortgage and we built up savings in the offset and overpaid by £500 every single month.
Will you be having kids in the next 2/3 years ? Working less hours, going self-employed?

getmore4less · 1 April 2015 at 9:40AM

Not really enough info to do a risk assesment

Whats the best tracker you can get.

Whats the most you can afford?

Why fix at all?

Overpayments reduce the debt so lower rates no build in build in protection for the future.
the way rates are a 5year fix may actualy just be ensuring you pay more for 5 years.

You can't just use the difference in payments to compare, look at how much you would owe in 2 years time paying the same.

Why not put up all the details like mortgage size and full term?

Dinosaur35 · 1 April 2015 at 10:39AM

Thanks,

Loan size is £275k over 30 years. With the 2yr fix after 2 years the balance would be £2,200 less then the 5yr fix over the same period. Product has the ability for 10% overpayment so LTV could potentially be at 65% if we overpay over 2 years on the 2yr fixed product.

Our preference is to fix so we can be sure on our mortgage outgoings each month, at least in the first couple of years.

Mortgage_Mark_2 · 1 April 2015 at 10:57AM

If you go for the 2yr fix and overpay the additional £155 a month, you'd have reduced the balance by about £5,500 more in those first 22 months, compared to paying that payment per month on the 5yr rate, meaning your LTV will almost certainly be in the lower banding for a potential remortgage/product switch at the end of that fixed rate.

I can't answer for you as I don't know how much you would value of the added security after 2yrs, but I'd be fixing for 2yrs personally.

getmore4less · 1 April 2015 at 1:08PM

£275k over 30years paying
1. 2y 1.69%(£975)
2. 5y 2.79%(£1129)

pay £1130 on both after 2 years you owe

1. £256884
2. £262905

£6021 difference

to be at the same place in 5 years(£243450) the 2 year followon for 3 years needs to be 3.62% or less.

You are looking at rates going up by 1.75%-2%(ish) in the next 2 years to make the 5 year a better bet.

Dinosaur35 · 1 April 2015 at 4:22PM

Thank you so much for taking the time to reply. We've decided to go with the 2yr fix with a view to overpay where possible. My broker agreed with this approach and hearing additional views has helped make up my mind.

This was my first post on this forum so really impressed.

dimbo61 · 1 April 2015 at 4:32PM

" with a view to overpay"
Now you have taken the cheapest deal with ONLY 22 months fixed.
You should at least overpay by £155 a month ( set up the DD at £1129 )
You also talked about overpaying by 10% a year ( do you have £27,000 spare? )
You have a 30 year term and will pay very very little in the first 2 years unless you overpay.
You could even miss out on 65% LTV deals

getmore4less · 1 April 2015 at 4:53PM

Did your broker give you numbers or just waffle?

Dinosaur35 · 1 April 2015 at 6:38PM

Thanks for the feedback. I know it's not a full 24 month product , but that's due to the delay in completion date.

I wish I did have £27k to pay off now! I may use my bonus in the future to pay off additional amounts, but unlikely the full 10%. We will be overpaying each month.

Broker was very patient and talked through the figures, offered to change the product if we preferred the 5yr fixed.

pjread · 1 April 2015 at 6:45PM

at 69% LTV I just went for Nationwide's 4 years @2.34%. probably not the uber-cheapest if all goes well, but a cushion against crazy rates a couple of years in to e.g. a Lab/SNP government wrecking the economy

2yr vs 5yr fixed mortgage 70% LTV

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