First time buyer - fixed mortgages - 2 years or 5 years?

poloboyden

Hi

I am a first time buyer and I have been accepted for a 5year fixed mortgage at a 3.89 interest rate. However, I am also able to swap this to a 2 year mortgage with an interest rate of 3.29.

I simply cannot decide whether it is better to go for a smaller interest rate for the next two years or a slightly higher rate with the knowledge of how much to budget for each month consistently over the next 5 years.

Any thoughts/opinions would be greatly appreciated!

lei_armstrong

I'm a first time buyer too and have just applied for my mortgage - I decided to go for the 5 year fixed rate as I think two years will fly by and also rates can only go up from where they are now! Don't forget to take into account the arrangement fees too when comparing what works out more cost effective (e.g. £995 split over 2 years versus 5 years)...

John424

lei_armstrong wrote: »

rates can only go up from where they are now! .

- I'm not sure you can predict that? Ignoring Mervyn King's upbeat retirement speech yesterday about growth, it was only a few weeks ago that it all was doom and gloom still with talk of 'negative' rates (quickly discounted I know), the ECB has just cut its base rate and Govt housing schemes are still in the infancy which are driving down rates.

jamesml

Great point about the arrangement fees - I think there is a calculator around to help work out which will be cheaper. You do need to consider what rate you would get at the end of your 2 year fix - would you be happy to stick on the SVR (bearing in mind you don't know what the SVR will be - and it may have risen by then). If you are going to want another fix bear in mind that your LTV won't necessarily be that improved - you will mainly be paying interest for the first couple of years - so you won't be getting the best deals around.

Personally I went for the 5 year, partially for the security and partially to try and give me a bit of a chance to improve my LTV when I come to find a new deal. Having bought a new build it was probably more relevant for me to try and get some improved LTV in there. I'll probably end up wishing I wasn't on such a long fix from a flexibility perspective at some point, but that's one of those things - more of a personal circumstances point.