Does remortgaging cost more in long run?

bluedrop

Is it a good idea to:

1. Take a 2yr tracker for 2.59% and move to a better deal later ( what are the costs involved?)

Or

2. Take a 3 yr fix at 2.99%

Or

3. Take a 5yr fixed at 3.59%

Please share your thoughts and help me decide?

motherofstudents

depends whether you prefer the certainty of having a fixed rate. If you need to know exactly what your payments are going to be for the next 5 years then paying a higher rate of interest might be preferable. Nobody knows for sure what is going to happen to the economy but interest rates are very low at the moment so the only way is up, just when that is going to happen -who knows ? Maybe you could talk to an IFA before making a decision. If you decide to remortgage there will be costs involved but you can shop around.

bluedrop

motherofstudents wrote: »

depends whether you prefer the certainty of having a fixed rate. If you need to know exactly what your payments are going to be for the next 5 years then paying a higher rate of interest might be preferable. Nobody knows for sure what is going to happen to the economy but interest rates are very low at the moment so the only way is up, just when that is going to happen -who knows ? Maybe you could talk to an IFA before making a decision. If you decide to remortgage there will be costs involved but you can shop around.

I am NOT asking if the interest rates are going to go up. My question is, which among those sounds like a better deal considering remortgaging costs? Appreciate the fact that you responded though

Yorkie1

Each time you remortgage you will have some or all of the following costs:
- Mortgage broker fee
- Mortgage application fee
- Survey fee
- Risk of higher interest rates by the end of the shorter fixes, cancelling out the earlier savings.

The relative impact of these on overall cost will also depend on the amount borrowed.

You can see that these variables all impact on the answer to your question, albeit the last one is an unknown.

Have a look at the fixed rate mortgage comparison tool on here to play with some figures for the products you seem to have in mind.

kingstreet

I know I'm a glutton for punishment, but I'll say it again for the third time in one of the OP's threads.

If you borrow a smaller amount, picking a mortgage product with no fees and a cashback may be preferable to a lower rate product with fees attached to it.

If the OP was to tell us if this is a purchase or remortgage, the amount he/she is borrowing and the loan to value it would be immensely helpful in giving us the information we need to give an opinion on the products suggested and potential alternatives.

HappyMJ

bluedrop wrote: »

I am NOT asking if the interest rates are going to go up. My question is, which among those sounds like a better deal considering remortgaging costs? Appreciate the fact that you responded though

The answer to that question decides the answer. If you think rates are going up then the longer the fix the better so the 5 year fix is best. If you think rates are going to stay the same for the next 2 years then the 2 year fix is the better choice.

My choice has always been based on the standard variable rate. Pick the mortgage with the lowest revert to rate and you will probably never need to remortgage again. I picked a SVR mortgage 10 years ago and will never change it.

Notmyrealname

bluedrop wrote: »

Is it a good idea to:

1. Take a 2yr tracker for 2.59% and move to a better deal later ( what are the costs involved?)

Or

2. Take a 3 yr fix at 2.99%

Or

3. Take a 5yr fixed at 3.59%

Please share your thoughts and help me decide?

Usually you end up with £2000+ of fees to pay which outweigh any savings you would make on the interest. If there are no fees then the interest rate on the fixed period is higher to recoup them.

The only time its really worth it is if you're going to save more than £200 a month in repayments and the period is longer than a year. For a lot of people with mortgages around £100,000 thats not going to happen as a drop of even 1% won't do that.

Notmyrealname

kingstreet wrote: »

If you borrow a smaller amount, picking a mortgage product with no fees and a cashback may be preferable to a lower rate product with fees attached to it.

It won't be. Mortgage companies are very clever. When you work out the total cost between a no fees and a fees mortgage over the fixed period it comes out to within a few quid. You either pay fees and get a lower interest rate or you pay no fees but pay a higher interest rate but bar a few quid or a couple of hundred quid over say a 2 year term, it works out about the same.

And unless you remortgage for just the remaining term of the original it costs you more. Many people will have paid say 5 years off a 25 year mortgage, having 20 years left but when they remortgage, get the new one over a 25 year period. Mad.

HappyMJ wrote:

My choice has always been based on the standard variable rate. Pick the mortgage with the lowest revert to rate and you will probably never need to remortgage again. I picked a SVR mortgage 10 years ago and will never change it.

This.

kingstreet

Notmyrealname wrote: »

It won't be. Mortgage companies are very clever. When you work out the total cost between a no fees and a fees mortgage over the fixed period it comes out to within a few quid. You either pay fees and get a lower interest rate or you pay no fees but pay a higher interest rate but bar a few quid or a couple of hundred quid over say a 2 year term, it works out about the same.

Interesting and reasonable point of view, if not always accurate.

Here's an example of the difference;-

Best current two year fix - HSBC 2.24%
£137 val & admin fee, £1,999 booking fee, £30 TT fee, £399 legal cost using HSBC panel solicitor, £0 final fee. Early repayment penalty during fix = 2% in year one, 1% in year two. Follow-on rate 3.94%. (APR 4.1%)

Total costs for £50k, 50% LTV 20 year capital & interest remortgage = £72,367
Over the two years of the fix = £8,773

and

Best current two year fix fee-free - NatWest 3.15%
£30 TT fee, free legals, free valuation, £250 cashback, £0 final fee.
Early repayment penalty during fix = 3% in years one and two.
Follow-on rate 4.0% (APR 3.9%)

Total costs for £50k, 50% LTV 20 year capital & interest remortgage = £71,502
Over the two years of the fix = £6,526

so

Short-term cost saving = £2,247 by opting for fee-free option.
Long-term cost saving = £865 by opting for fee-free option.

the ERP is different and you may wish to take that into account when choosing a deal. The saving would be eroded as the mortgage amount increases so that, as I mentioned earlier, the rate becomes more important the greater the mortgage becomes.

And unless you remortgage for just the remaining term of the original it costs you more. Many people will have paid say 5 years off a 25 year mortgage, having 20 years left but when they remortgage, get the new one over a 25 year period. Mad.

So, make sure you use the remaining term of the current mortgage and and make sure you get a deal with a decent follow-on rate. I completely agree with that.