7year deal, worth it?

mantamark

Hi guys and gals,

Basically, we are selling our 3 bed flat to move into a 3 bed house,

The flat *should* sell for 100k
We are looking at a house for 135950
We need a 81k mortgage
No bad history or anything.

Found a HSBC mortgage thats a 7 year deal, now its tempting as it locks the payments in for a long period, which gives us stability, but is this too long a deal?

The rate is 5.69%, where their standard 5 year is 4.79% and 2 year is 3.79%

I'm just worried at the moment, the only direction the base rate is going any time soon, is up.

The payments on the 7 year deal would be £566, 5 year is £525 and 2 year is £482.

We can easily afford these, but are worried if there is a massive hike in the rate, like up to 10%, will we be as comfortable?

Basically, what do you guys thing with regards to a 7 year deal, with that sort of rate?

Many thanks.

Mark.

andrewmp

Go into a long term fix understanding there is a decent chance you'll pay more than if you didn't fix and you'll go in with your eyes open. You're paying for the comfort of knowing what you'll be paying for the next x years.

You do have the added bonus of potentially saving money if rates were to go higher long term.

property.advert

The current best HSBC is 2.49% I think so you would be paying 81000*.0249/12= £168 a month but you are contemplating paying 81000*.0569/12= £384 or over twice as much ?

Have you considered what happens if you overpay (384-168) ? on the flexible deal ?

I have used only interest only figures as you do not say it is repayment nor mention a term.

If you can use Excel, you can work out that if rates rise 0.25% every so often then they will have to rise to X% in Y years to be worse off.

I do understand your worries about rising rates but what do you think the top rates will be ? I cannot see 10% on the horizon and the gap between mortgage rates and the base rate.

I would overpay now and take the risk. If there were capped rates then I may suggest one of those but we are some way off seeing them again. Yes, interest rates will rise but not by 5%

mantamark

Andrewmp - thats exactly it, we may be better off, we may not, its a gamble, but the 7 year deal is ok, its not putting us out at all, and we will be saving £300 a month on flat months (i normally do 10-40hrs o/t a month which is extra savings)

Property.advert, thats waaayyyyy out of my league! i'm veryconfused about all the mortgage stuff as it is! Its a 20 year term, that will get me mortgage free by 48, which is nice

I've actually been looking around, and Brittania (co-op) do a 10 year deal that is 5.49%, or £558 a month, which is a bit less than the 7 year deal.

I'm really not confident with overpayments, i like the idea of paying a set fee, and not having to remember to pay more at different times.

I understand that its not likely that the rate goes to 10% in ten years, but who knows? election looming etc?

If only i could get a 10 year fixed deal at 2.5% :P

mantamark

does anyone have any thoughts on this, or better deals i could look into? Thanks.

danielley

I locked into a 5yr fixed back in 1998 when I bought my first house; the bank of England rate was 6.75% and the fixed rate was 7.45% if I remember correctly.

I was a complete novice; all I knew about mortgages was that I didn't want an endowment because of the bad press they had got about underperforming and also I wanted the security of a fixed rate, so that I knew that I could cover the payments regardless of the interest rates going up!

I asked the accountant at the company I worked at for advice, should I lock in for that long? as 5yrs when I was 18yrs old was a long time! He said that he thought the only way that he could see interest rates going was up! Anyway after a bit of deliberation I signed up and was locked on a 5yr fix.

However, all they did was go down, for the whole 5 years!!! J And ironically as soon as I was out of the fixed period it started to climb again!

Maybe it was my youth, maybe it was me being so happy because I was in the bubble of love and just excited to own my first home, but it didn’t bother me too much at all, because I knew that just as they had gone down, they could very well have gone up, and I valued the security of knowing what I would be paying each month more than I wanted to take the risk of the rate increasing and me being unable to afford the repayments as much.

I think nowadays it's a very different world, most people would agree that the only way they can go is up as they are so low, however, there is no guarantee of anything so if you want to know exactly what you are paying and you cant see your personal circumstances changing greatly in the next few years then a long term fixed would be a safe bet.

Hope this helps.

ItMightBeUsefulOneDay

The choice to fix or not is a personal one and depends on factors such as attitude to risk, affordability and so on. Interest rates WILL rise, they can't go lower. The only question is by how much and how soon.

Personally I think that fixing at 5% or so is a good low rate and taking out a base rate plus 3.99% is rather foolish. But that's MY personal view. For me, paying a small amount extra now is better than watching with baited breath for a wunch of bankers to decide how much extra I'll be paying them this month. I like the certainty of a fix and am willing to pay a little extra every month for it. Plus I won't be moving again for some time (unless something drastic happens). Again, this sways me to a longer term fix.

Other people will argue that getting a nice low tracker rate will allow you to overpay and therefore have less capital owing at the end of the term. Therefore you pay the debt off early and pay less interest overall. Works while rates are low, nosedives into the tarmac if rates jump.

It's a gamble and no-one knows which will work out cheaper over the term.

andrewmp

mantamark wrote: »

Andrewmp - thats exactly it, we may be better off, we may not, its a gamble, but the 7 year deal is ok, its not putting us out at all, and we will be saving £300 a month on flat months (i normally do 10-40hrs o/t a month which is extra savings)

Property.advert, thats waaayyyyy out of my league! i'm veryconfused about all the mortgage stuff as it is! Its a 20 year term, that will get me mortgage free by 48, which is nice

I've actually been looking around, and Brittania (co-op) do a 10 year deal that is 5.49%, or £558 a month, which is a bit less than the 7 year deal.

I'm really not confident with overpayments, i like the idea of paying a set fee, and not having to remember to pay more at different times.

I understand that its not likely that the rate goes to 10% in ten years, but who knows? election looming etc?

If only i could get a 10 year fixed deal at 2.5% :P

I think it's fairly likely that if you got a tracker now, the tracker rate would hit 10% in the next 10 years. This is because they tend to track quite high over base rate at the moment.

I'd go for the 10 year fix if it's cheaper than the 7 years one (including fees). I actually took out a 25 year fix (get out free anytime after 10 years if I want). I guess I'm against risk somewhat :-).

If I liked a gamble, I'd have taken a tracker and have been quids in now, I stil wouldn't change my mind, not even with the benefit of hindsight though. I value the security of knowing what I pay, over any short-medium term savings.

Regarding overpayments. If your product allows them, it might be a good idea to oversave rather than save (once you've got an emergency buffer fund). The rate of your mortgage will be a lot higher than you'll get in a savings account so it makes sense at the moment if you can afford it and don't need easy access to the money.

dimbo61

What are your long term plans ?
Do you have kids ?
Is your OH going to be off work having kids?
Do you plan on staying in this house for the next 10 years? or move up in 5/7 years!
Is this your forever home ?
Can you afford to overpay ( are you allowed by HSBC ( 20%) or Co-op 10%???
I have been in a 5 year fix for last 4 years and happy with decision just got to find another deal in 8 months.
Sub 5% five year fix is a good deal and gives you security long term but so is the 10 year 5.49% fix IF YOU PLAN TO STAY

mantamark

cheers guys. I'm liking the idea of a 10yr fix more and more, it means half of the mortgage term i just pay the same amount and dont have to worry about it!

Plus i'm hoping by that time i've passed my exams and be on a better wage, or even promoted.

We both love this house, just hope our flat sells now! This is our forever house, no kids as yet, but we would like one!


Thanks again.

Mark.

mantamark

oh, and work have a cracking maternity plan so shouldnt loose much through that.