5 or 10 Year Fix?

ixxi

I know this is by no means an easy question to answer, as if we knew the future we probably wouldn't spend our time answering questions on which term of mortgage to get, but I'm currently torn, and need a bit of help to make a decision!

I'm remortgaging early next year, and am not sure whether to go for a 5 or 10 year fix. I'm convinced that fixing long is better than taking advantage of an horrifically cheap short-term tracker, but not sure how long to go.

We own a 3 bed semi, and will be 65% LTV.

After a lot of digging the best options I've found seem to both be with N&P, who have a 5 year fixed for 2.84% with £295 fees, and a 10 year fixed for 3.84% with no fees. Both offer free valuation and legal, which sets the 5 year fixed apart from cheaper offerings from YBS.

Given the current SVR of N&P (4.99%) after 10 years we would only make a £500 saving going for the longer fix, however the likelihood is we'd remortgage onto another product once the 5 years was up, so the gamble is whether in 5 years time a 5 year fix (with c. 50% LTV) will be similar to the current SVR, or cheaper.

Anyone have any thoughts they fancy sharing?

Many thanks in advance.

IxxI

Viscount

Guess part of your decision is based on how long you have left of your mortgage after 5 or 10 years and how much you have to pay off. If the difference is £500 it sounds like the 10 year deal is best option.
Is the interest for a long term deal likely to be lower than you are getting atm? - i'm not qualified to comment.

I am also at similar crossroads looking at a 5 year deal 2.99% and £299 fee with HSBC and I've got 18 years left.

Slightly_Squiffy

Would it not be better to fix at 5 years on the smaller interest rate and overpay with the savings you'd be making on the 1% difference? I suppose it depends on the monetary difference between the two.

robbraz

Can't help as I'm considering the same options - 5yr with greater overpayments vs 10yr, although I'm looking at YBS for the 5yr (larger loan I suspect as the rate outweighs the fees).

One consideration is the risk of being tied into redemption penalties for longer - e.g. you need to sell and can't port the mortgage (i.e. moving into rental temporarily, abroad etc)

Putting that to one side it all depends of course where you see interest rates in 5 years. If you suspect products will be available with IRs only a percentile or so above today's rates then I'd go for the 5yr overpaying and have some flexibility. However if you suspect IRs may be more like 2-3% higher in 5 years then clearly a 10yr fix is going to outweigh the benefits of the overpayments during the first 5 years.

A 10 years deal also saves you another set of product/arrangement fees.

Depends also (as ever with a fix) on income volatility - 10 years is a long time to know your payments will not increase.

It's a tough call and I keep swinging both ways on it. Either way, 5 and 10 year fixes are still incredibly cheap.

I'll end with the contrary statement that I currently seem to be leaning towards a 5yr although I believe the 10yr is a better deal!

ixxi

Thanks all for your kind and above all useful responses.

Stupidly I hadn't even thought about committing to overpaying on the 5yr with the savings from the lower rate vs the 10yr and it think that makes the most sense. Not only does that give the most flexibility, but even if I end up paying the SVR for 5 years after that I still end up better off than on the 10yr fix.

Probably should have posted more information on my situation, and though I've made a decision I will do in case anyone's interested!

Looking to borrow £140,000. My current mortgage is a 2.39% 2 year tracker which I took out when I bought the property. House is worth £228,000. I'll be taking out a mortgage with 20 year term but my hope is to pay it off as quickly as possible. I'd like to be mortgage free by 40 if possible (currently 29) so overpayments make perfect sense.

Cheers all,

IxxI

robbraz

I assume your calculations are assuming that if you take the 5yr then years 6-10 will be on the current SVR of 4.99. Bear in mind you don't know what it will be. It's very unlikely to be lower, it could be the same, or it could be 5.99 or 6.99 - is that ok?

ixxi

I think I'd be looking to move to another product after the fix ended anyway, and although it could be that even the best products are worse than the current SVRs in 5 years, I've assumed that even if interest rates increase by 2% in that time I end up better off.

It's obviously all a gamble, which is why the 10yr fix is so tempting but I think that with the overpayments it's a gamble I can live with.

My salary is increasing by 15% as of January, and although that's not a massive jump in real terms it's 15% I've not had for the last two years, so can put all of that aside for overpayments/a contingency for if interest rates are much larger than I've accounted for once the fix is up.

IxxI

andy.m_2

I am in exactly the same boat, similar LTV and also looking at N&P 10 year fix.

My biggest consideration is what state the IR's will be in when I'm out of the fix, in my mind I cannot see rates staying as they are past 2015/2016 so will I be leaving a 5 year fix to go onto a gash SVP up in the 6 or 7%s?

If so then the value in the 5 year fix is completely wiped out and then some.

I have moved from 5 year fix to 5 year fix and while friends have enjoyed ludicrously low trackers I am loathe to move away from my original game plan and the security it brings.


I suspect that I will be on a 10 year fix by the spring and that I will try my damnedest to clear as much of the capital as possible in that time.

Kynthia

I've decided on a 5 year fix. It's difficult but I'm not sure the extra i will pay over the next 5 years will be worth it for a 10 year fix, although that does depend on how much interest rates rise in a few years. However I'm also factoring in that my LTV ratio will be noticeably lower in 5 years, mostly due to 5 years of repayments but also possibly due to house price increases. Therefore I'm expecting to remortgage in 5 years time at whatever is an extremely good rate at the time. I believe that that rate at the lower level of borrowing and lower LTV ratio in 5 years time plus the lower interest rate now compared to a 10 deal now, will cost less overall than the 10 year mortgage will costs overall at the current LTV ratio and level of borrowing.

robbraz

I'm in a slightly different place:

- I believe IRs will be at least a couple of points higher in 5 years
- I believe there is a very good chance house prices will be the same or lower, not higher
- My LTV is already <65 so any improvement won't get me a better deal (based on LTV thresholds).

Based on all the above a 10yr fix would appear to make more sense for me - however I'm still undecided.