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  • FIRST POST
    • ian310567
    • By ian310567 6th Feb 18, 3:55 PM
    • 12Posts
    • 5Thanks
    ian310567
    New house: 5 vs 10 year fix?
    • #1
    • 6th Feb 18, 3:55 PM
    New house: 5 vs 10 year fix? 6th Feb 18 at 3:55 PM
    Hi,


    I have to admit I'm struggling with this decision; I'm about to take a mortgage out with Nationwide for £127,000 on a £263,000 house purchase, so a LTV of less than 50%. I'm 50 and likely to remain in this house for a long time and the monthly repayments to pay off in full over a 10 year term fit in with my budget - I'm just not sure whether to lock in to a 10 year fix and pay a bit more or go for the cheaper 5 year fix?


    Options are:
    10 year fix: 2.59% @ £1202.43 per month
    5 year fix: 2.09% @ £1173.69 per month


    So, £28.74 per month may not seem a lot for peace of mind and not having to re-mortgage again in 5 years, but over 60 months that is £1,724, plus (according to whatsthecost.com) the balance would be £790 less after 5 years - total saving of £2.5k in the 5 year period.


    It is also possible that I could make further overpayments during that time. I never like paying any more interest than necessary, but at the same time am concerned at what the rate may be in 5 years time.


    Question is: what would the interest rate need to increase to during the 5-10 period for the 10 year term to be the best option?


    I'd also welcome opinions on what you would do in this situation.
    Last edited by ian310567; 06-02-2018 at 4:04 PM.
    Smile and be happy, things can usually get worse!
Page 1
    • Mortgage_Adviser
    • By Mortgage_Adviser 6th Feb 18, 4:34 PM
    • 88 Posts
    • 38 Thanks
    Mortgage_Adviser
    • #2
    • 6th Feb 18, 4:34 PM
    • #2
    • 6th Feb 18, 4:34 PM
    10 years is an extremely long period of time. Many things can happen eg health, family matters meaning you need to sell earlier. You would then be faced with potentially huge early repayment charges.
    • JimmyTheWig
    • By JimmyTheWig 6th Feb 18, 4:37 PM
    • 11,534 Posts
    • 11,179 Thanks
    JimmyTheWig
    • #3
    • 6th Feb 18, 4:37 PM
    • #3
    • 6th Feb 18, 4:37 PM
    If you are clearing the balance in 10 years then the average balance in the first 5 years will be roughly 3 times the average balance in the second 5 years.
    So the breakeven point will be an interest rate of i% in the second 5 years, where
    2.09 x 3 + i x 1 = 2.59 x 4
    i = 4.09
    • stueyhants
    • By stueyhants 6th Feb 18, 7:43 PM
    • 510 Posts
    • 909 Thanks
    stueyhants
    • #4
    • 6th Feb 18, 7:43 PM
    • #4
    • 6th Feb 18, 7:43 PM
    HSBC have much better rates at those LTVs, is there a reason to stop with Nationwide. Current 5 year fix is 1.74.
    • dimbo61
    • By dimbo61 6th Feb 18, 7:50 PM
    • 9,749 Posts
    • 5,253 Thanks
    dimbo61
    • #5
    • 6th Feb 18, 7:50 PM
    • #5
    • 6th Feb 18, 7:50 PM
    If you have the ability to overpay every month and clear the mortgage in 10 years I would look at offset mortgages and save into the offset or overpay every month.
    I would take the 5 year deal and pay off as much of the debt as quickly as possible.
    • silvercar
    • By silvercar 6th Feb 18, 8:05 PM
    • 36,659 Posts
    • 154,718 Thanks
    silvercar
    • #6
    • 6th Feb 18, 8:05 PM
    • #6
    • 6th Feb 18, 8:05 PM
    On a 5 yr deal you need to factor in what sort of mortgage rate you will get in 5 years time.
    • Badegg
    • By Badegg 7th Feb 18, 12:33 AM
    • 26 Posts
    • 2 Thanks
    Badegg
    • #7
    • 7th Feb 18, 12:33 AM
    • #7
    • 7th Feb 18, 12:33 AM
    HSBC have much better rates at those LTVs, is there a reason to stop with Nationwide. Current 5 year fix is 1.74.
    Originally posted by stueyhants
    would you recommend HSBC @ 65% LTVs for 10 years too? just comparing now and i like that they dont seem to have any product fees...even if the cost turns out to be ~1k higher at end of mortgage vs TSB.

    any idea if any particular bank would be more likely to allow consent to let after 5 years on a 10 year fixed? i would most likely be aiming to overpay each month by a few hundred in initial period if that makes a difference...

    edit: presumably where it says e.g 0 for valuation etc, thats all included....apologies first time getting mortgage

    edit2: it seems from brief research HSBC do max 4.75 income multiplier whilst TSB do 4.5....for me id need 4.75 unfortunately so guess HSBC is my best choice unless someone does more?
    Last edited by Badegg; 07-02-2018 at 12:44 AM.
    • getmore4less
    • By getmore4less 7th Feb 18, 2:26 AM
    • 31,359 Posts
    • 18,789 Thanks
    getmore4less
    • #8
    • 7th Feb 18, 2:26 AM
    • #8
    • 7th Feb 18, 2:26 AM
    over 10 y at y5

    £127k @2.09% £1202pm £65024

    to pay that off in the next 5 years like the 10y fix @ 2.59% with the same payment max rate is 4.18%

    play with the numbers and overpayments the actual interest totals may not be too different.

    remember overpaying the higher rate saves more interest in the comparisons and narrows the gap.
    • ian310567
    • By ian310567 7th Feb 18, 3:23 PM
    • 12 Posts
    • 5 Thanks
    ian310567
    • #9
    • 7th Feb 18, 3:23 PM
    • #9
    • 7th Feb 18, 3:23 PM
    HSBC have much better rates at those LTVs, is there a reason to stop with Nationwide. Current 5 year fix is 1.74.
    Originally posted by stueyhants
    No reason to stop with Nationwide other than I like their customer service, but thanks for the heads up as I've now applied for the HSBC 5-year fix at 1.94% (their no fee option works out better), plus it has a further 3 months on the fixed term vs. Nationwide.
    Smile and be happy, things can usually get worse!
    • ian310567
    • By ian310567 7th Feb 18, 3:25 PM
    • 12 Posts
    • 5 Thanks
    ian310567
    If you have the ability to overpay every month and clear the mortgage in 10 years I would look at offset mortgages and save into the offset or overpay every month.
    I would take the 5 year deal and pay off as much of the debt as quickly as possible.
    Originally posted by dimbo61
    I've gone for the 5-year option, as that is what I will try to do, i.e. overpay to reduce the term and balance owing at the end of the 5-year fixed period.
    Smile and be happy, things can usually get worse!
    • spaceboy
    • By spaceboy 7th Feb 18, 6:28 PM
    • 1,699 Posts
    • 274 Thanks
    spaceboy
    On a 5 yr deal you need to factor in what sort of mortgage rate you will get in 5 years time.
    Originally posted by silvercar
    How do you do that?
    • getmore4less
    • By getmore4less 7th Feb 18, 7:31 PM
    • 31,359 Posts
    • 18,789 Thanks
    getmore4less
    On a 5 yr deal you need to factor in what sort of mortgage rate you will get in 5 years time.
    Originally posted by silvercar
    How do you do that?
    Originally posted by spaceboy
    There are only 4 variables to a mortgage you only need to know any 3 to do do the calculations.

    at the 5y point you know three of the 4, amount owing, monthly payment and a term to get to Zero.

    From those 3 you can work out the interest rate.
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