Fixed Rates - Lowest inital rate or lowest subsequent rate

rico14d

Hi,

I'm looking at taking out a mortgage very soon and had chosen one from the Woolwich (4.19% 2yr then 2.99%) because of its low subsequent rate. I'm now wondering if its best to go for the mortgage with the cheapest initial rate (e.g. ING 3.69% then 3.5%).

The cost over 2 years is much less with ING but over 4 years+ the Woolwich will start to be cheaper. I have little knowledge of re-mortgaging so not sure if it would be cost effective to go for the low rate and change after 2 years.

Anyone have any advice for this?

Thanks,
Rich

Purchase price £185000
Deposit £37000 (20%)

The_White_Horse

are people genuinely this stupid?

beecher2

Why are you taking a 2 year deal? I'd go for a longer deal to save having to pay out more fees, particularly when your LTV might be above 80% after 2 years.

rico14d

The White horse : Ok, but i'd still appreciate your advice.

beecher2 : The longer fixed deals I've seen all have much higher rates.

Thrugelmir

If property prices fall. Then your remortgaging options in 2 years time could be affected. As your LTV could well be higher.

The_White_Horse

the point is, what it follows on to is not set in stone. those are the current rates. if the base rate is 5% when your fix ends, the rate you will go on to is 7.49% not 2.99% as you think. the ING rate of 3.5% is variable and may in fact be less than the woolwich rate if base is 5%, it may be 6.99% - who knows.

rico14d

Yes, i am aware that the follow on rate is not set, but as we dont know what rates will be in 2 years ive just assumed that it would be a relative rise across all products. Maybe this is wrong.

If rates were to rise by 2% then the woolwich would go to 4.99%, so would the variable rate rise by 2% also (5.5%) or would it not go as high?

alexlyne

Going for a 2 year fix just because it's cheaper than 3 or 5 years is not a very good way of thinking about mortgages. If you're buying a telly, then fine, go to the place that sells them cheaper.

I think that almost 100% of people expect a small rise in rates this year, followed by more in the next couple of years, probably dribbled in. In 2 years time, banks will still be trying to screw us out of money, so the fixed rates will probably be comparatively higher than they were a few years back compared to the base rate. Only after that (perhaps) will mortgage rates become competitive again.

Oh and hey, whatever you do, you do realise that once your next fix is over, you are allowed to move provider?