Need an opinion

ArcticGiraffe

Hello,

I'm just about to get a new fixed rate mortgage. I'm looking at a Halifax 3 year fixed rate repayment mortgage with 4.990% interest.

They want fees of £999 to to set this up.

The obvious question to me is: if I can get the same thing fixed for 5 years would it be better to do this - to spread the cost of the product over more years?

I need to weigh this up with the risk of better interest rates being available in 3 years ...

Can I get some advice and opinions on what I should do? Does anyone have any feeling for what the best action would be based on what is known about the market today?

Thanks,

Alan

_Andy_

Personally I'd opt for the 5 year (assuming you're not wanting to move or sell in that time). I can't see any reason why rates would be significantly better in 3 years time.

beecher2

The Halifax 5 year deals are more expensive - 5.99% for 75 -90% LTV.

ArcticGiraffe

Thanks for the quick replies!

I'm checking up on that interest rate - if the 5 year product is indeed a whole 1% more then am I right in thinking for a debt of 135k it would be cheaper going for the 3 year one? (even with the fee)

beecher2

It depends on where rates are in 3 years time, and what LTV you have by then. Have you looked at what other lenders are offering?

ArcticGiraffe

I have, and as far as I can tell, in my situation that's the best one for me.

That 5 year product is indeed 5.99%

As I don't have any idea what the market is like I was wondering if someone with a little more experience of such things could give me an opinion on if they think the interest rates will do in 3 years time - based on that if choosing between those two products - what would you do?

If interests rates are 'not likely to change' then I would assume I should opt for the 3 year one?

I understand that this is a gamble - and no-one really knows, but I'm after best guesses here based on what experience people have

Niv

Is there still a £999 set up fee for eth 5 year deal? If not, how does it calculate out for you?

beecher2

Yes, there's a £999 fee.

Interest rates will go up at some point and I will almost certainly increase significantly over the next 3 - 5 years. I have no idea how that'll impact on fixed rates which will be available.

I'm not sure which one I'd pick to be honest - I might be tempted to stay on the SVR of 3.5% for a while and save/overpay.

ArcticGiraffe

Well as I understand it I'd need to do a compound interest calculation and my mortgage interest would get calculated daily, so quite tricky :-S

But if I simply do
4.990% of my debt (135k) = £6.7k
5.990% of my debt (135k) = £8.0k

Then in one year I would already be saving roughly 1.3k which is more than that fee anyway? So if my sums are right I should go for the 3 year on this basis? - assuming that interest rates don't change?

I have extended the term to 35 years so I can overpay at my discretion - (the new product allows this up to 10%) mainly because they have said I can under pay by as much as I have over paid by in the past - which will give me more protection against a period of redundancy ...

I'm probably going for the 3 year one then unless anyone has any strong reasons why not - thanks for the advice!

beecher2

Your payments would be £686.18 a month at 4.99% and £775.04 at 5.99% if that helps with your calculations. You'd also have to factor in the £1000 fee you might have to pay at the end of year 3 when you get a new deal.

ArcticGiraffe

It does help so there is a difference of 3.2k between those two rates over 36 months - which again seems to be more than the money I would loose through fees in the shorter fixed rate product.

So the only random factor I need to worry about is if interest rates have gone up significantly after 3 years to make me wish I gone for that 5 year deal.

Question is: what are the chances of that? Anyone care to hazard a probability on it? Or is it completely unpredictable? What would you do? If it's more than likely interest rates will go up by enough to make the 5 year one the cheaper option by the end, then I'd want to go for that ...