First Time Buyer - fixed mortgage 3 years vs 5 years

wojtur

My MA suggested those two options. I am not sure if I should go 3 or 5 years at the moment. Please advice



1) 3 Years – 3.94% = £1200 pm payments over 30 years – Lender fee £499 – SVR 3.99% and APR 4.30%
2) 5 Years – 4.64% = £1306 pm payments over 30 years – Lender fee £499 – SVR 3.99% and APR 4.30%

Danni-R

Hi,

I'd go for the 3 year one.
You are paying more with the 5 years and in 3 years the chances are that the interest rate will rise but not so much so that you cant remortgage in 3 years at the same or slightly lower rate.

Plus side of 5 years is you know how much exactly will be coming out but thats an extra 106 quid a month you could be over paying....

originalmiscellany

I would say that the 5 year option seems pricey...
If you can overpay/save in the three years, then you could be in a position to overpay and get an even better mortgage in three years.
Are you able to do that?
As Danni-R says, it's an extra 6k over 5 years at the higher rate which is quite a lot...

wojtur

I should have also mentioned that this offer is with 15% deposit which is the maximum we can afford at the moment. I could not find anything better (in terms of interests rates) on my own. We are planning to do some improvements to the house in the next 3 years so I guess overpaying is not an option but rather saving. £6000 is a nice sum over three years but with the current economic climate I am afraid that such low interests rates will not last long but maybe I am being overcautious.

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originalmiscellany

If that's the case, I'd go for 5, and give you plenty of time to save up and sort yourselves out. And we don't know what the future will hold;
Security sounds like a priority, which 5 years will offer.

Sepa74

Agreed, however I would caveat that if the improvements are likely to increase the value of the house and reduce your LTV ratio you may find it increases your ability to get a better mortgage in 3 yrs.

But it depends on the improvements - extensions, kitchen / bathroom renovations or a loft conversion will increase the value, but boring yet vital things like rewiring and a new boiler won't!

It's a crazy world we live in

wojtur

I think I have found better solution. YBS offers 5 years fixed 4.44% mortgage with offset account. So if I store all my savings on the offset account I can choose option that reduces my net monthly repayments, which will allow me to save even more. This way I can keep fixed rate for longer, reduce monthly repayments and build up budget for the house improvements.

wojtur

I also found a 5 year tracker to fix offer which gives me 3.09% for two years on tracker and then it switches to fix at 4.74% for a remaining 3 years. That sounds like a good deal as it seems that BoE rate will remain low for the next 1-2 years. What do you think?

Twiddy

I like the YBS Offset option, its similar to saving for your renovation plans but while you are saving, you are reducing the interest due on your mortgage......

Cheers
T