2 or 5 yr fixed?

astar24

Hi. I am in a situation where I need to renew my mortgage and am undecided whether to fix for 2 or 5 years. I'm with nationwide and on their variable rate 3.99 after mortgage deal just ended. Ordinarily I would fix for 5 yrs now considering rates are rock bottom but I have my reservations for the following reasons:

1- we have a rental generating us 10k profit per year that we are using to overpay our own residential property thus decreasing our ltv ( we are currently sitting at 68% ltv.

2- we want to sell both properties in 2-3 years to fund a nicer family home. The rental is worth 220,000 and the same for our home. Ultimately we want to be mortgage clear on our home before we move on so we can have 250k to put down as a deposit on the next house. Will look for a house then around 400k

I don't want to be in a situation in 2 years where rates have climbed but equally don't warn to lock myself into a mortgage if I sell both houses and want to pay my residential mortgage off early and get penalised for it

So confused and advice would be much appreciated.

hcb42

you have to consider the ERCs so it sounds like to me a 2 yr might be a better option

dgtazzman

We opted for 2 years on our mortgage as everything I have read indicates the base rate will remain at 0.5% until late 2015 at the earliest and then it will only start rising very slowly. It made sense to me to fix for 2 years now and then fix for 5 years after that, when the rates should start going up...

hcb42

my thoughts were that life changes,and even in two years, just had to pay £4500 in ERC on a two year mortgage, as the events that life threw at us, we never anticipated...if I had to anticipate that, I would have stuck on the normal rate as there is no way the discounted rate was worth £4500, especially as we were 18 months in - but life is unpredictable, given you have events in the five year plan, do not commit to this kind of inevitable expense unless you do it with your eyes wide open (we did this too, but sometimes life throws a major curve ball)

sebtomato

I don't think there is much point fixing for 2 years only, since interest rates would rise very slowly anyway, if they do. Unlikely that the base rate would be higher than 1.5% in two years time. As for fixing in 2 years time, then the rate will be much higher than now.

Conclusion: if you are worried about interest rates going up, you need to fix for the longest duration now.

kingstreet

What about a tracker with a switch to fix option?

StuC75

Lets face facts, besides the rates staying as they are,, the only direction they can go is up..

If you fix now for a longer term then the rate you will get will be higher on a 5 year than what is offered on a 2 or 3 year deal. fixing 2 year now, then taking a 3 year option (2 years down the line) could be cheaper than what the 5 year deal is now...

What you also need to consider is the current LTV Rate that you have, and use the KFI Documents to understand where you are likely to be at the conclusion of those fixed periods..

Because mortgage products (And rates offered) can vary by LTV, if you time it so that the fixed rate ends near to you reaching a lower % 'gate' then you would benefit from the product you could secure at that time..

sebtomato wrote: »

I don't think there is much point fixing for 2 years only, since interest rates would rise very slowly anyway, if they do. Unlikely that the base rate would be higher than 1.5% in two years time. As for fixing in 2 years time, then the rate will be much higher than now.

Conclusion: if you are worried about interest rates going up, you need to fix for the longest duration now.

[Deleted User]

I just went for a 5 year fix..

2 year fix was 3.49%, 5 year was 3.79% - 85% LTF with First Direct. Fee free

As the last post said, the only way they'll go is up. They might stay the same for a few more years, but but it's not a huge deal more (£40 a month) for quite a lot of reassurance (for me, at least).

Don't forget fees when working out the '2 year cost' (and i like first direct because they have low rates AND no fees)

dimbo61

68% LTV on a £220K property still means you have a BIG mortgage and even with the rental income of £10K a year PROFIT it will take a few years to clear the mortgage on your home

Ryantymon

There are some cracking 5 Year fixed deals at the min.

astar24

Thank you for all your comments, all very helpful. I am thinking now about the tracker mortgage with a switch to fix option. This might sound like a dumb question but if I did chose to switch am I able to pay off a considerable chunk of say £20,000 before I did the switch and thus reduce my ltv.

It would be a good option for me to sit on the tracker for a couple of years or so avoiding the higher 3.99 variable rate but have the option to pay off a bIt more before I do switch to a fixed rate. Is his possible or is this wishful thinking? Thanks