Mortgage fixed rate term - what are people choosing?

bingobangobongo

Given the option to have a 2 year fixed mortgage at 2% (4% after 2 years), OR a 5 year fixed rate at 3.19% (4% after that) - what is the sensible choice?

Both these are 70% LTV.

Is it best to take the 2% and remortgage after 2 years, and hope that the interest rates have not risen much and try and get a good deal which would hopefully be less than 4%?

Just wondering what other people in a similar situation are doing.

Thanks

MoHunter

For me it would depend on whether after 2 years I would expect to still be in the same LTV bracket as when taking out the mortgage, which obviously depends on the property. Would the rates drop if you have 60% LTV then? If that is unlikely to happen I might be tempted to fix for 5 years.

But also depends largely on your circumstances.

As it is with our property we have chosen 2 year fix for following reasons:
- property is poorly maintained and decorated and with putting in a lot of work ourselves are confident it will be worth more in 2 years when remortgaging, putting us into the next lower LTV bracket
- partner has a default which will be off his credit file by then
- partner will not be in a probationary period then like he is currently, meaning more lenders should be willing to lend to us
- our car loan will be paid off in 2 years so affordability should also be better

So we expect our remortgage options will be better than what we can currently get.

If none of these were the case then I would prefer the stability of a longer fix personally. Only you know what your circumstances are though.

bingobangobongo

Interesting points.

We are also going to do some work on the house:
- oil to gas conversion
- update kitchen
- new bathroom

The house will be worth more after 2 years. How much more is hard to predict. It will be very close to 60% LTV though and if we save over the next 2 years also then we should able to get into the <60% bracket where the rates are lower (currently 1.89%).

Thrugelmir

Interest rates are only heading one way. If you intend remaining in the property. Then the 5 year fixed term. At provides you with a degree of certainty.

If by remortgaging you are suggesting moving lender. Then there will be other costs to factor in. Which will reduce the differential between the products.

bingobangobongo

Thrugelmir wrote: »

If by remortgaging you are suggesting moving lender. Then there will be other costs to factor in. Which will reduce the differential between the products.

So if I remortgage after my fixed term is up, there will be charges?
What charges will there be?
There shouldn't be early repayment charges as the deal would have ended.

Just a set up fee?

Thrugelmir

Unless the new lender is offering a "free" product. Then they'll be legal fees, property valuation fee, potentially a product fee, along with a redemption fee for your current mortgage.

Can soon add up to a considerable sum of money.

If you remain with your current lender then may only be a product fee. Question is what rates will they be offering in 2 years time?

bingobangobongo

Thats the question.

The rates will obviously be higher, but how much higher - 1% maybe? If I have 60% LTV after 2 years ,would I be in a good position to fix at a rate of around 3% - which would make the 2 year fixed a better option.

Thrugelmir

The funds available to lenders drawn under the Funding For Lending scheme are slowly drying up. So as time progresses rates will be determined more by market forces and less by intervention.

A 2% interest rate is good if you can obtain it. What's the product fee though as often the sting in the tail. As lenders target higher borrowed amounts with these products.

bingobangobongo

Product fee is £995 for the 2% 2 year fixed deal. Which seems to be standard. Same fee applies for the 5 year 3.19% fixed deal.

amnblog

bingobangobongo wrote: »

Just wondering what other people in a similar situation are doing.

Thanks

People are obtaining mortgage advice based on their own unique situation on the best option for them going forward.

The smart ones via a broker - the not so smart direct with a lender.

woody252506

We've gone with the Post Office at 2.79%, 3 year fixed. No product fees and all valuation/legal fees are paid for by the Post Office. Thats with a LTV of 75%.

We intend staying where we are for now, by the time we are into our final year of the mortgage id be expected us to be looking to upgrade and move to a bigger house.

Fortunately we got the house at a really good price 5 years ago as it was a reposession. The valuation done a year ago by an estate agent priced it at £25k more than the price we paid for it. We have done a lot of work on it (New bathroom, new boiler, garden, full strip down and re-decorate in all rooms) but even after working out these costs, we have spend much less than the house is now worth.