How long would you fix for?

Lally

I have seen a few rates which are just below 6%, and are for 5 or 10 years.

I worry that if I fix for 5 years then rates will be higher then and I won't get a good deal when remortgaging. However they could fall again in 10 years...

I do want a fixed rate and not a tracker. I want to know that we can afford our mortgage for a certain time.

I suppose this is the dilemma faced by all, but what would you do?

lisyloo

It's completely 50/50 in my view.

Bear in mind that if you go for a 5 year deal, then you will need to pay fees again.

Personally I would opt for 10 (and have done) because long term it's a pretty good rate and historically pretty low.

However it is indeed a close run thing.

If you are going for security, I think you have to forget that you might not get the best deal. It's simply a price you have to pay for the security.

Lally

Yeah the fees do play a big part in it. It would be good to know that we can afford the monthly payments for 10 years to come. I am glad it wasn't such a crazy idea!

Locoblade

Im in the same boat, deciding how long to fix for.

Im currently looking at the First Direct fixed products and cant decide on 3,5 or 10 year fix. The 3 year is the lowest rate so is appealing in the short term, but to me the fact that a 5 year fix is slightly higher (with the same fees) suggests to me that FD predict the rates to be fairly stable or even rise over the next few years. If FD thought rates were likely to drop significantly within 2-3 years would they not price the 5 year fix below the 3 year fix in order to get borrowers signed up on the higher rate for longer, rather than sway them towards a shorter term fix when in all likelyhood they'll remortage again after 3 years and get a better rate? Maybe me over/mis analysing these things, but it makes sense to me.

If I take the 5 year fix, that's nearly £130 a month additional on my mortgage at its current rate of under 5%. Given that weve always previously had lower rates having only bought for the first time 4 years ago, its tempting to expect rates to drop again and look at a 6% rate as "high", but as lisyloo mentions, historically 6% isnt really very high so this may be as good as its going to get for a while, who knows.

Stick or twist?

lisyloo

suggests to me that FD predict the rates to be fairly stable or even rise over the next few years

Almost but not quite.

FD won't be lending you their own money.
They will get it wholesale from the money markets.

So it might be true to say that the "money markets" predict.....................

So right idea, but it's a third party and not FD.

To be honest I don't think anyone knows but you are correct to point out that you are gambling against professionals here.
So it's certainly the case that any perceived risk is already priced in.

Is it logical to try to beat the professionals by gambling on your mortgage rate?
Personally I'd have to say no, it doesn't make logical sense to try to beat them at their own game.

straddie

The FD deals are good because they are highly flexible offset accounts. This means you can make unlimited overpayments (something most fixes don't allow), borrow back any of the capital you pay off at any time, and offset savings against your mortgage balance, only paying interest on the difference.

This means that even if rates did fall, by increasing your savings you can reduce the effective interest rate you pay to compensate.

Lally

Thanks all. The cautious part of me is steering towards the 10 year one but I am still worried that rates may fall and I will be stuck with a rate which is high(er) and would cost me a lot to get out of. My first mortgage was a capped one, it's a pity you can't find these any more!

Locoblade

Same here, its obviously a concern getting stuck on a higher rate as you say, but I guess we've got to weigh it up against the concern of not being able to pay the mortgage at all if it goes up even further in a few years time.

Personally Im currently swaying towards sticking slightly longer term with the comfort that I can afford the repayments rather than worrying for the next 3 years if the market carries on going down and rates rise further.

As mentioned by straddie, the FD offset fixes seem pretty good so worth looking at if you haven't already, the minimum that actually needs paying each monthis the interest so there's a nice buffer there if personal circumstances change and you can no longer afford the capital repayments, and you can overpay and borrow back all the capital again at any time if really required.

From the calculator on their site, just by having about £3k (ie the majority of our joint monthly salaries - not actual savings as such) offsetting it each month, it seems to drop the payments by about £15 which for me is equivalent to a 0.15% drop in the actual interest rate, so worth having the offset even for that, even without any other significant savings to put in.