Mortgage - Fixed Period - Please Advise

cwcw

We haven't yet exchanged on the flat we're buying, and probably have about 2 - 3 weeks before we do so. After reading all the crash predictions and interest rate predictions, we're wondering if we should change our mortgage.

We have paid £280 valuation up front with Alliance and Leicester. We went for the 2 year fixed rate (which I presume is 2 years from when you start, although the documents seem to contradict) at 4.89%. Arrangement fee iof £499 added to the mortgage.

However, A&L offer a 5 year fix (portable) at 5.24%. Although it would mean roughly an extra £25 a month in repayments, it could well save thousands if interest rates are significantly higher than they are now (I know this is difficult to call but indications seem to suggest they will be higher in 2 years than they are now?). Do you think A&L would allow us to switch easily without losing our valuation fee? Or would they make us start again? If the latter, there are better rates than 5.24% for fixed rates so we would tell them we're going elsewhere instead, but obviously this could hold things up with the flat and p*** off the vendor.

mr.broderick

predictions you say..thats exactly what they are..predictions..
I think everyone who buys a house gets a little edgy near to completion,its human nature..am i doing the right thing? etc etc..I think the deal you got with the A & L sounds reasonable and would be happy with that..Good luck anyway..

cwcw

Oh no, I was hoping to read more replies when I got home. Please, the more replies the merrier.

Also today I was thinking about whether a repayment mortgage really is the best option to take for a 2 or 5 year fix. Interest is front loaded, so could it actually be better to go interest only (which is less in interest payments for the first few years than a repayment) and put the difference into a high rate regular saver, and then use it to pay off some capital at the end of the fixed term before remortgaging? The capital paid off at the end of a short fixed period like this would be more than paying the capital through a repayment mortgage due to the interest being front loaded by nature. What do you think? Please advise - I'm not seeking free professional advice, just peoples' general thoughts and opinions. I promise I won't have your IP traced and sue you if I go bankrupt in a few years.

mr.broderick

cwcw wrote:

Oh no, I was hoping to read more replies when I got home. Please, the more replies the merrier.

Also today I was thinking about whether a repayment mortgage really is the best option to take for a 2 or 5 year fix. Interest is front loaded, so could it actually be better to go interest only (which is less in interest payments for the first few years than a repayment) and put the difference into a high rate regular saver, and then use it to pay off some capital at the end of the fixed term before remortgaging? The capital paid off at the end of a short fixed period like this would be more than paying the capital through a repayment mortgage due to the interest being front loaded by nature. What do you think? Please advise - I'm not seeking free professional advice, just peoples' general thoughts and opinions. I promise I won't have your IP traced and sue you if I go bankrupt in a few years.

I have read this post 4 or 5 times and i have come to a conclusion.
You are obviously in a fair position financially and in the position to actually purchase a house.
You have been scouring the forum recently and the house price crash prophecisers have clouded your judgement. Step back, think carefully and continue to do what you always intended to do and buy this house, its a good deal you've got, just relax and go for it.

_Sparky__2

Hi,
I also think you are making a good descision, 2 years is not very long really, and if you look at some predictions the rate could go up .25% some then suggest a fall back in 12 months. A 4.89 is pretty good , are there any redemption charges i.e. will you have to pay to get out of the mortgage?any extended tie ins?
If no then you can always renegotiate a better deal in a couple of years. If you change products with A&L you should be fine however if you pick another lender you will have to pay another valuation fee. I would probably stick with the deal as it is a reasonable product over all. Some lenders can be quite slow at processing and it could just lose you the flat if the vendor finds a cash buyer.
Regards Mart.

cwcw

cwcw wrote:

Also today I was thinking about whether a repayment mortgage really is the best option to take for a 2 or 5 year fix. Interest is front loaded, so could it actually be better to go interest only (which is less in interest payments for the first few years than a repayment) and put the difference into a high rate regular saver, and then use it to pay off some capital at the end of the fixed term before remortgaging? The capital paid off at the end of a short fixed period like this would be more than paying the capital through a repayment mortgage due to the interest being front loaded by nature.

Ok, I was talking rubbish here, if this calculator is correct: http://www.bankrate.com/brm/popcalc2.asp

The front loaded interest in its highest month (month 1) is the same as the interest in an interest only mortgage, and gets less month by month from then on, so we will definitely go with repayment and not interest only. Still not 100% sure about 2 years at 4.89% or 5 years at 5.24% though.