3.69% 4 years or 3.99% 5 years

Darren21

Another consideration is what rates could be in 4 or 5 years time as when the fix ends you will be stuck with whatever rates are at that time.

I think too many people miss this point - a 5 year fix can give false security because over a 25 yr term it only makes up a fifth of this time. If your circumstances are likely to be fairly stable over the medium - long term and it isn't absolutely critical that you don't pay more than 3.99% then consider a tracker instead - some are available with no switching penalties so you could switch and take advantage of low rates now AND fix in say a few years time BEFORE rates go up - i.e. this could give more security than having a fixed rate now.

nick2011

Thanks Darren. I have two issue with your point. Forgive me If my point looks stupid.
I suppose I can remortgage after 5 years if rates go higher, (obviously with a fee)
With 3.99% its good considering low interest rate environment and after 5 years when it goes up it won't be that low. (even with fix I assume it will be higher than now). More importantly at present there is not huge different between tracker and fix due to low rates.
So for next 5 years I know for sure how much it would be and then I can plan for rest 20 years afterwards.

With so many predictions out there in the market its hard to gauge all and I suppose I can live with 3.99% for 5 years and then change afterwards possibly a remortgage with a better rate as I don't intend to change home for next 15 years.

latecomer

I think what Darren is getting at is that if rates stay low for another couple of years then you could potentially benefit from a short term tracker and then take a longer i.e. 5 year fixed after this.

Of course there is no way to know whether todays rates will be available in 2-3 years. Like everything else its a bit of a gamble. You can always overpay if you have spare cash while interest rates are low and make the most of it.

We took a 5 year fixed in 2008 which has been somewhat painful but then at least we knew the costs would not increase over the 5 year term which was important to us. (I still wanted a BR tracker though )

nick2011

Yes I am thinking overpayment each month as no point of saving with current rates and I will stick with 5 years as there is not much difference between tracker and fixed when we compare with 2 years. Its better to be averse risk rather than gamble it as I can afford 5 yr fix easily.

latecomer

Make sure you have a little spare cash for a rainy day or at least check that you can take a payment holiday if you overpay.

nick2011

Yes I will have a look. Thanks for pointing those "latecomer" as I totally missed those

Jazzyjeff_2

nick2011 wrote: »

Yes I am thinking overpayment each month as no point of saving with current rates and I will stick with 5 years as there is not much difference between tracker and fixed when we compare with 2 years. Its better to be averse risk rather than gamble it as I can afford 5 yr fix easily.

Taking a 5 year fix only means you are being risk averse in the short term because if rates have doubled in 5 years time you are then stuck with a high rate whatever you decide to do.

Whatever you do you are taking a gamble:
- by taking a 5 year fix you are gambling that rates won't stay relatively stable now and increase significantly shortly before your 5 year fix expires.
- If you take a tracker then you are gambling that in the short term rates are unlikely to rise leaving you free to either stick with the tracker or jump ship to a fixed if you think rates may spike at some point in the future.

nick2011

yes but taking 5 yr fix I know exactly how much I am paying for next 5 years so I don't worry about the rates. when it comes to after 5 year I can re-mortgage if tracker rates are not suitable for me.

JimmyTheWig

nick2011 wrote: »

I'm a FTB for offer accept and I am in a position to select to go for which rate.I have two options
4 years 3.69% fixed
5 years 3.99% fixed
product fee and other charges are same

Personally I'm normally in favour of longer-term fixes. But in this instance I would go for the 4 year fix. [Though you haven't mentioned what the fees are. Although they are the same this is better "value" when spread across a 5 year fix than a 4 year fix.]

But I think you should either overpay as though you are on the 3.99% rate, or put the difference aside each month as a back-up.

My reason is based on looking at what you would owe after 4 years in each case.
With the 3.99% rate paying £1028 a month you would owe £175,268 after 4 years.
With the 3.69% rate paying £1028 a month (i.e. £32 a month overpayment) you would owe £172,864 after 4 years.
That's £2,404 less, having paid the same. Worth having, I'd say!

But also the less you owe, the less effect an interest rate rise will have. I know it's not that much less, but even so.

nick2011

thanks Jimmy. A totally different way of looking and I like that. fees are identical for both .
But I expect rates to be rise in 5th year dramatically as from the most of predictions I read and its going to have huge impact. I mean significant rise. So why Not I stick with 5 years.