2 year or 5 year fixed?

mattrobbo99

I'm looking at a 90% LTV for 225k at 4.69% for 2 years fixed reverting to currently 3.9% SVR from HSBC.
Alterntively I can fix at 4.89% for 5 years.
After 2 years I doubt I'd be at 85% LTV to get a better offer so maybe the only option would be to go onto the SVR.
I know it's impossible to forecast, but what factors do I need to take into account? We would be ok with the repayments at 4.89%
Also they offer a 3.8% discounted rate for 2 years, but this could fluctuate during that period depending on their SVR. What would they likely do? Raise the rate quickly after starting the mortgage?

Any advice would be much appreciated

mij544

Historically the 4.89% is a very low rate remember, and 20 basis points higher for an extra 3 years seems a no brainer to me.

If you are happy with the payments, and want the security of knowing what you have to pay each month then the 5 years seems the one to go for.

If however you feel rates are not going anywhere, and you could afford the possibility of the rate rising in the future then maybe discounted is for you.

Hope this helps,

Mike

mattrobbo99

Thanks. I'm leaning towards the 5 year option too

spongybobby

Im no money expert, but i recently purchased my first house.

Iwas facing the same dilema as you are, Fixed for short term or pay a slightly higher rate and fix for a longer period.

In the end i fixed for 5 years, like yourself.. im paying 4.69% though my 2 year was 4.29%.
TBH i was not too fussed about the extra .4% as i needed the security of knowing my mortgage payments where going to be £XXX per month and not rising, with a family to feed and other things to pay for i didnt want to face the unexpected rise of mortgage payments.

mattrobbo99

Thanks. Was that rate for 90% LTV? If you don't mind me asking

smcqis

Considering it a good deal for 5 year fix with 90% ltv, i took out a 5 year fix about 6/7 months ago with a 60% ltv and best rate was 4.39% with was 0.5% cheaper than rest!!

benjo

I took out a 5 year fix in April 09, my only regret is that I didnt take a 10 year fix - but then I like to know exactly what I have to pay.

2 year fix vs 5 year fix.... 2 year = you save on the monthly payments, but you pay twice for product fee's during that period.

JimmyTheWig

I would steer well clear of the two year fix.
Rates may have gone up considerably in two years time at which point the SVR won't be anything like as low as the 3.9% it is now.
A two year fix is taking a gamble on interest rates. If you're going to do that, why not just go with the cheaper variable rate. In terms of it being variable, it's only variable based on some sort of published rate (either set by the Bank of England or the mortgage company) - they can't just put up "your" rate soon after you take the mortgage out. But if they put up their rates across the board then yours will raise along with everyone else not on a fix.

Personally I like the safety of the 5 year fix. Though it depends on many factors, such as...
Could you afford, say, 6.9% if rates went up by 3% in two years time?
Are you happy to be tied in for 5 years (e.g. it's perfectly possible to meet someone and start a family in that timescale)?
What fees are charged for each of the options? Sometimes these are more relevant than the rate.