FIXED RPM - 2, 3 or 5 Years??

BeerBelly

Hi,

We are First time buyers with a quick question

Wouldn't is be better to go for a 5 year fixed term instead of say 2 years? I understand the 5 years would be at a higher fixed rate, but would this offer some advantage if rates go up or is it all calculated to take into account such an event?

If we go for 2 years fixed and hop at the end of this for another 2 years, the fixed rate would obviously be higher than 2 years previous, but over the course of the 4 years wouldnt you end up paying a similar amount if you were on your 4th year of your 5 year fixed RPM?

Hope Im making sense!

The only disadvantage I can see is if rates fall within the next 5 years, but how lightly is that?

Any insight? Want to see what term is best for our money!

What is recommended for a First Time Buyer?

Thanks Guys

lynzpower

your potential problem is what if you move and you are lumbered with fairly large redemption penalties?

I tohught I would never move again, but here I am just out of my fixed product ready to exchange ( ish). Of course if I were buying again, we could look at porting the mortgage to the new place but as we are selling to rent, then we wouldn have had to pay them.

Life changes, and some of those changes are unpredictable. Personally, I wouldnt feel like I could go on for 5 years fixed, as there could be loads of cheaper deals after year 2 or 3- or then again there might not. you pays your money you takes your chance as they say

BeerBelly

I have read some Fixed terms tie you in for an extra year, say and penalise you if you change during that period, but Im not too clued up on redemption fees to be honest!!

OK,

I am right in saying there is a difference between

1. Moving your current mortgage on the same property to another lender
2. 'Porting' your mortgage to another lending becasue of a different/new proprty?

If Im staying in the same house (for arguments sack) and theres no small print about penalties before a certain period, I can chop and change no problem?

Are Redemption fees when you change property? (Sorry,, shouyld look it up on Wikipedia, being lazy!)

Ian_W

Some mortgages do tie you in with a penalty for longer than the fixed period but not as many as used to be the case. If you search any of the mortgage comparison sites, or speak to a broker, indicate you only want to consider products with "no overhanging" penalties. That means you're only going to pay redemption penalties if you repay the mortgage during the fixed rate period.

Porting your mortgage means staying with the same lender but moving house - most fixed rates allow this nowadays but do check - particularly with a longer fix. Porting BTW, isn't the be all and end all, the lender has to agree your new property and it's valuation - and if you're borrowing more, as is usually the case, you won't get the same rate as the original loan and are very much at the mercy of the lender concerning the rate you do get for any additional borrowing.

Reference your questions - moving lender but staying in the same property = remortgaging, no problem if you're outside any penalty period but do be aware of arrangement, legal and valuation fees. They can mean a lower % rate costs you more but some remortgaging deals inc free legals and valuation. Porting is explained above - different house, same lender.

HTH.

BeerBelly

Thanks a lot.

Seem to be learning everyday!

Gorgeous_George

IF you change your mortgage every two years you'll pay 12 lots of admin fees/surveys/solicitor's fees etc. Mortgage brokers simply love two tear deals because they get your business over and over again.

The important factors are:

1. The mortgage must be able to be ported i.e., moved to another property if you decide to move.
2. Avoid fixed rates with a tie-in longer than the fixed rate WHat if the fixed rate ends and you can afford neither the standard variable rate (SVR) nor the redemption penalty?
3. You need to consider what you will do when the fixed rate ends if a) house prices crash and b) if interest rates are significantly higher
4. Will you be able to overpay during the fixed term or, at least, off-set your savings against the mortgage.

There's plenty to consider. All that shines is not gold.

Good luck



GG

BeerBelly

Thanks!

Excellent Advice - already told my broker interested in a 5 year deal!