First Direct Fixed Rate 2.99% 2 Year - Good Idea?

foxmulder_3

We are currently on First Direct's variable rate 3.69% and have a mortgage of £125k that is for 28 years on a house worth £200k. I am thinking of jumping onto their 2.99% 2 year fixed rate that has a fee of £599, the admin change is waived as we are already with them.

Am on a fixed income with three dependants so would not want to be paying interest rates above 5% in the future. I've always swayed towards fixed rates and the last two times have played it correctly and saved money. With the uncertainty of rates I know that they could rise or fall and nobody can predict what they will be in two years time and I would prefer a longer deal say 4 of 5 years but the rates are ridiculously high compared to the current variable rate.

Now the question we are all asking it seems. Are two year deals a good idea? For me as we are on an interest only mortgage with voluntary repayments (flexi-offset mortgage) I would immediately save £70 a month and see my monthly interest payment go from £370 to £300 for the duration of the 2 years if the variable rates stayed the same, saving £1.7k less the £600 fee.

Any advice, thoughts would be greatly appreciated.

On a note I am staying with First Direct, first class service all along and they always answer the phone immediately!!!

littlemrtinkle

it comes to gambling what the rates will be in 2 years time, and no one really knows.

5 year fix 4.64%, 4.89 (no fees alliance and leicester)
Both are really good , personally i would go for the longer security of 5 years.

mramra

If you are definitely staying with First Direct then it is a no brainer as they don't offer any fixed rates other than the 2 year 2.99%.

Foggy

I've gone for the same one. It suits me perfectly because I intend to pay off a substantial amount of the capital in the two year period. The 2.99% rate gives me the opportunity to make the most impact on the capital. If this were not the case I would be looking at a 5 year fix to be honest.

dimbo61

As you want to stay with FD and they only offer a 2 year fix then you have only one decision to make stay on the SVR or jump on the fix.
IF you can really save into the offset account or overpay the mortgage for the next 2 years ( BIG STYLE ! ) then 2 years fixed gives you the chance to clear a big part of your mortgage.
Foggy is taking this course of action and therefore not too worried about future rate rises.
If your ability to clear a big chunk off the mortgage will not happen in 2 years then you need to face the fact that rates will rise and you need to plan for this.
GOOD LUCK

Nice_guy

Hi Fox,

I too have taken this mortgage out and my intentions are very similar to what foggy will be trying to do - hence it's perfect for our situations.

You have already worked out that you will be £1100 better off over the two year period, plus as two year fix rates go in general, the FD offer is very competitive. Then you factor in the benifit that offsetting gives and it kinda turns into a no brainer. In reality you will save more than £1100 over the two year period if you use FD for all your banking as you will be offsetting as much money as possible.

You will have to think about what happens at the end of the two year period (reverts to FD's SVR) but this is a consideration for all fixed rate mortgages. You've played the game well as you said, this is just another wise move, then in 2 years revaulate again.

AFAIK the 2.99% fixed deal is a limited offer. If you decide it's for you don't waste anytime in booking it!

Conrad

My own mortgage is up for renewal right now so I have been pondering my options.

I have decided to remain on my lenders variable rate (C & G 2.5%) as I have always found it prudent to be guided by the Governor of the B0E. He today has hinted as strongly as it is possible for him to so do that rates wont be going anywhere until 2011, barring a major unforseen.

He wont want to put the recovery at risk, and for sure even the perception of rising rates in this phase could be enough to undo all the hard work and quantitative easing.

So I am sitting tight on the SVR and will keep a very close eye on Mervyn King's future comments. I imagine I will look to fix in late 2010, something like that but this is of course flexible.

Please do not take this as advice, merely this is my own personal choice suited to me right now.

Nice_guy

It's a fair point Conrad makes, however as the SVR is his lenders decision, this can go up at anytime, regardless of what the BoE set the interest rates at. Unless I am missing something?