Which remortgaging is best for me?

Envisage

I've got a mortgage left to pay for £280k (75% Loan to Value) and I'm currently on a tracker for 3.3 including the BOE interest rate.

I'm thinking of remortgaging to a better deal and I have 4 options from FirstDirect:

1)
2 years fixed
2.6%

2)
3 years fixed
2.8%

3)
5 years fixed
3.2%

4)
Lifetime tracker
2.7% ( this is 0.6% less than my current deal)

So which one is best financially considering the economy is improving?

The tracker one is a bit riskier of course.
The 2 years fixed, looks to be the cheapest but have to remortgage again in two years.

Thanks,

ch3101

Personally I'd go with option 3.

You never know what the interest rates whill be like in a few years so you could come out of a 2 year fixed deal and instanty be on 4% or something.

That's just me being cautious though - I like to know what's ahead

Envisage

Thanks for replying.

I understand what you mean about seeing the worst case scenario but I don't think the interest rates can become 4% for the same deal in two years because

1) Interest rates will go up gradually when the economy gets improved so it'd be like 0.5% per year so in the worst case scenario the best fixed rate can go up to 3.6% (I mean with exactly the same deposit).

2) My equity in the house will go up to 35% in two years considering both the overpayments and the house price rises so I'll be able to get a better rate with 65% LTV.

So I think after two years, I could get another two years fixed for maximum 3.1% in the worst case.

kellyt86

If it was me, if rather a 5yr fix then you know your payments will be the same for next 5 yrs, also less cost then remortgaging every 2yrs, with fees etc.

But personal decision and depends on how risk adverse you are!

I would worry rates will go up after two years and there is no guarantee will only go up 0.5% a year.

Envisage

Thanks Kelly for replying.

Do you really think if the bank was thinking the interest rates are going up to e.g. 5% in few years time then they would offer now 5 years fixed for 3.2%?

I think Bank must be smarter than us and more accurate in their calculations.

What I mean is if they would have really thought the interests are going up very much they wouldn't have offered this 5 years fixed. They are here to do business and gain profit.

Thrugelmir

Envisage wrote: »

Do you really think if the bank was thinking the interest rates are going up to e.g. 5% in few years time then they would offer now 5 years fixed for 3.2%?

Banks back to back fixed term funding against loans advanced. Which guarantees their margin.

What's the follow on interest rates when the product terms end? You may find a sting in the tail. Assuming they'll be a cost effective remortgage 5 years hence may actually be more expensive in the longer term.

Envisage

Thanks for replying.

I agree 5 years fixed would be the safest option but we don't know whether it'd be more or less expensive than other options.

The benefit of tracker or 2 years fixed is that if you do some valuable work at the house (e.g. Garage/Loft/Living room/Kitchen extension) then be able to remortgage and get some cash from your property then you can buy a second property with the difference easily whereas in the 5 years fixed approach you'd have to wait until the period has finished or pay exit penalties.