Confused about fixed rates!!

mrmrsa

Hi

My husband and I are in the process of buying our own first place and we've just received our mortgage offer through. I thought it was a very good deal at a 2 year fixed rate of 3.98%.

I'm getting a bit worried though that interests rates could have risen a fair bit by the time our 2 year fixed rate ends and that we will then either struggle to afford it or won't be able to afford it. Are interest rates likely to go up THAT much??

My mortgage broker has told me that the same lender (Abbey) also offers a 3 year fixed rate at 4.89% or a 4 year fixed rate 4.99% but that he can't guarantee that I could get either of these loans and that we would also have to pay for the valuation on top (which came free with the 3.98% one). Even if we just want to find out if we can get one of the longer fixed rates that would mean that our current offer would be cancelled and we'd loose the good deal as it's no longer available.

Any recommendations on what we should do would be much appreciated. It's only my income that is taken into account (32k) as my husband is self employed and we are putting down about a 20% deposit on the property value. The total mortgage amount is 127k.

Thanks
Mrs A

Senior_Paper_Monitor

Your mortgage broker appears to have given you all the relevant information/options.

It is now your decision - if you genuinely feel that in the event of a considerable rise (certainly not impossibe) when you exit the current deal would be difficult/impossible for you to accommodate you should 'insure' by spending some money now (i.e re-applying with Abbey or elsewhere - your broker will advise) and taking increased costs during teh deal period.

If I was you (and this is what would suit me - not necessarily you) I would take the current deal, but put away the difference (or more if possible) with the longer term higher cost more secure alternative (or more), perjhaps a cash ISA, so that you have an 'insurance fund' sat there to deal with any possible future issues when you remortgage.

SilverSix

You should really be budgeting so that you can afford repayments when interest rates rise, which they will. When and by how much I can't say. Try to look at the bigger picture if it's going to be affordable 4/5 years down the line at say worst case scenario 6/7% rather than affordable right now.

If you can't afford to take the risk of being lumped with a higher interest rate when your deal ends then fixing for as long as possible (and paying a premium for it) would suit you. Otherwise I'd be sticking with a tracker and overpaying as much as possible/saving a lump sum to pay off (find a deal with no ERC's or X amount/% each month) so that when rates do rise you can lower your oustanding amount to counter balance the rise.

Senior_Paper_Monitor

In the environment/circumstances affecting the OP I don't necessarily go with the 'overpayment route' at the initial stage - by setting the funds aside you can allocate them to avoid future problems, if you overpay them they are generally no longer available for that purpose.

SilverSix

Senior_Paper_Monitor wrote: »

In the environment/circumstances affecting the OP I don't necessarily go with the 'overpayment route' at the initial stage - by setting the funds aside you can allocate them to avoid future problems, if you overpay them they are generally no longer available for that purpose.

True. Some lenders will allow you to 'underpay' (not pay at all) if you have over paid should you find yourself in need of funds. This would then however cancel out having overpaid initially of course.