Help! Which mortgage would you take, 2.39% 2yrs or 3.19% 5yrs??

moneymark

Hi there,

I am just about to pay a £50k chunk of my mortgage off and switch the interest only 3.99% variable to a fixed repayment. It will bring the mortgage down to £208k and I have 2 offers available to me.

2.39% for 2 years or 3.19% for 5 years with no fees on either but the usual early repayment charges. I can overpay 10% a year if I have the funds.

Big question is, which offer would be best in your opinion? I like the idea of being able to potentially change in a couple of years if rates drop. But is that likely and would 5 years be a safer bet?

Thanks in advance.

MM

ACG

I am 99.9999999999% sure rates will not be dropping from what they are now.
Certainly not in 2 years time.

Thrugelmir

Rates won't drop any lower. Two years hence rates may well be higher. Current forecasts are early next year for the first rise.

moneymark

So would you opt for the 5 year?

pcgtron

moneymark wrote: »

So would you opt for the 5 year?

Does a pig !!!! in the wind?

WLITC

I would say take the two years and lock in a new 5 year fixed in two years time when it's likey to have only risen a small amount.

Yorkie1

Sounds like the NWide offers.

I went for the 5 yr - didn't even want to consider 2 yrs.

Bufger

It depends on your ability to overpay. If you managed to reach your limit on £20k then £18k plus your standard payments would that put you in a much better LTV position in 2 years? (Without knowing the property value we can't advise) if yes then it may be worth the gamble as all signs are pointing towards a slow rise. If it doesn't make much of a difference then go for peace of mind.

As others have said rates will not go any lower. The only way is up but when and how fast is the million dollar question.

attila_

WLITC wrote: »

I would say take the two years and lock in a new 5 year fixed in two years time when it's likey to have only risen a small amount.

See this doesn't make any sense to me.

We know rates will go up next year according to BoE, this is the lowest they'll ever be, then why lock in 2 years taking you to 2016 and risk missing out on a low 5 year fixed?

I'd say go for 5, but then I'm new to this game.

pjread

I guess the key thing is the 0.8% difference... if the rates were identical, absolutely, longest fix wins in this climate IMO. but 0.8% is quite a lot that could be used for overpayments in that 2 years. if you paid 2.39% for 2 years, then you'd need to pay more than about 3.7% for the following 3 years before you were "down" versus the 5 year fix overall. Obviously you may end out with higher payments for those 3 years, but the total interest cost over the 5 wouldn't be any greater. (apologies for any arithmetical error, I'm on a train with no spreadsheet etc access, but I think that's about right for a very simple model based on interest only, which should be enough for this conversation!)

I'm emotionally gravitating towards longer myself, but it all depends what LTV and rates I'm looking at when I get there early 2015, and there's a good chance I'll end out going short and hoping I can drop an LTV "tier" by the end of another 2yr fix, on the assumption the LTV improvement will offset any likely rise on a longer fix, or another shorter won't have increased that much...

That said make sure you account for product fees either way, depending on loan value they might make a big difference...
[edit] just noticed no fees. I'd be tempted by that 2yr rate personally on balance I think. [/edit]

WLITC

attila_ wrote: »

See this doesn't make any sense to me.

We know rates will go up next year according to BoE, this is the lowest they'll ever be, then why lock in 2 years taking you to 2016 and risk missing out on a low 5 year fixed?

I'd say go for 5, but then I'm new to this game.

Well I think it was one of the mortgage advisers the other day that suggested that it would be better to take the two years at the lowest rate now and then lock in another 5 years at what is likely to be only a slighly higher rate in 2 years times. On the otherhand, if someone locks themselves into 5 years now, in 5 years time the rate could have hiked up quite a lot and they would see a massive jump in rates/mortgage payment. That seemed to make sense to me.