How long to fix for?

philgee

Hi, we are currently on Nationwide SVR after our 5 year fixed rate (4.95%) ended last June.

Obviously this is a good deal, as only paying 2.5% currently, but clearly interest rates will start to rise at some point, meaning our mortgage repayments will as well.

Therefore, we are thinking of getting another fix, sooner rather than later. By default, we started looking at 5 year deals, and found Yorkshire BS have a 3.99% deal with £995 fee. Then we saw they also have a 10 year deal at 4.99% with the same fee. Both rates seem to beat most of the other other 5 years deals available online.

4.99% is their current variable rate as well, so this sounds like a good rate, as if I fix at 3.99% on the 5 year deal, I doubt I would be able to fix at 4.99% when the deal ends.

Is 10 years considered too long to fix at? We have no plans to move or increase our mortgage. Both deals allow 10% overpayment each year (need to check that this will reduce the balance and not future repayments).

Obviously there are penalties if you want to get out earlier, but I can't forsee that we would want to.

We want to fix for the security - a five year fix would coincide with eldest daughter leaving Uni, a ten year fix with youngest one leaving (assuming they both go).

Property value is around 200k, with our mortgage currently at about 118k, with 19 years left, a LTV of about 60%.

Would be interested in your thoughts!

Thanks

sebtomato

With 19 years left, you are still paying a significant amount of interest on your monthly repayment, so a rate rise will have a large impact. If you only had a few years left on your mortgage, most of your monthly payment is for repaying the principal, as opposed to interests.

Variable rates are just a gamble: you could be better of worse off. With fixed rates, you pay more upfront, but you have a cap. If you are very tight in term of budget, and cannot afford a significant increase in rates, then fixing over 5 years or more is the solution.

getmore4less

Look at the effect of overpaying the current 2.5%.

£118k @ 2.50% 19y £651pm left after 1 year £113,081.90
£118k @ 3.99% 19y £739pm left after 1 year £113,763.28
£118k @ 2.50% 19y £739pm left after 1 year £112,013.72

£118k @ 3.99% 19y £739pm left after 5 years £95,023.28
£118k @ 2.50% 19y £739pm left after 5 years £86,515.97


Don't forget that the 2.5% rate will be lost forever so once the fix is over the cost will be higher long term.

philgee

sebtomato wrote: »

With 19 years left, you are still paying a significant amount of interest on your monthly repayment, so a rate rise will have a large impact. If you only had a few years left on your mortgage, most of your monthly payment is for repaying the principal, as opposed to interests.

Variable rates are just a gamble: you could be better of worse off. With fixed rates, you pay more upfront, but you have a cap. If you are very tight in term of budget, and cannot afford a significant increase in rates, then fixing over 5 years or more is the solution.

Thanks. Agreed about the gamble. The low rates at the moment have allowed me to clear all our other debts, and get our household finances in order and I have a spreadsheet, with all spending planned out until October 2013. Budget isn't tight, and 5% is affordable, but if BoE rate hits "normal" levels, we could be looking at paying 6-7%+, on a variable, and I would think any fixes would be around 8-9%, which wouldn't be good!

philgee

getmore4less wrote: »

Look at the effect of overpaying the current 2.5%.

£118k @ 2.50% 19y £651pm left after 1 year £113,081.90
£118k @ 3.99% 19y £739pm left after 1 year £113,763.28
£118k @ 2.50% 19y £739pm left after 1 year £112,013.72

£118k @ 3.99% 19y £739pm left after 5 years £95,023.28
£118k @ 2.50% 19y £739pm left after 5 years £86,515.97


Don't forget that the 2.5% rate will be lost forever so once the fix is over the cost will be higher long term.

Agreed, and initially, starting to overpay was our plan, but even at 5% I plan to overpay by roughly 2 or 3 monthly payments a year.

Obviously, as soon as BoE rate starts to rise, the 2.5% rate will be lost anyway.

dimbo61

Read in the paper only the other day that rates could stay low for the next 2/3 years and you would need 3 x 1/2% rises in the BOE base rate before you were paying more than the 3.99% that the 5 year fix costs!

dimbo61

Having said that !
I am a YBS customer and have just finished a long term 5 year offset fixed with them ( now on a tracker)
I wanted the security that the fixed offered and have been overpaying like mad HENCE offset
We have built up a large overpayment pot so could now if we wanted have a " mortgage holiday" for a couple of months.
If you are going to stay in your home for the next 10years+ then a 4.99% fix which you overpay by 10% a year keeping your mortgage payment static could see you almost Mortgage Free in 10 years and no more worries about interest rates