How long to fix for?

Orangeaid

Hi All,
I'm expecting our first baby in July & eager to fix before baby comes & I go on maternity leave.

DH & I went to see a rather aggressive mortgage advisor who said we should fix for 5 years at 3.19%. She spent a lot of the appointment trying to sell us life insurance & critical illness cover rather than drilling down the figures of the mortgage we'd come to discuss. With many guilt inducing comments about our unborn child!

This meant I lost some trust in her advice. That along with her scare mongering about the days when interest rates were 17%. DH thinks we should go 5 year fix for the security. My instinct is cheaper 2 year fix at 2.19. In the hope that we will get to 60% LTV & then get an equivalent or just slightly higher deal in two years time. We're also hoping to move soon - 2-3 years & though the bank said we could port our mortgage we would then be tied to the bank's lending agreement.

Just wondering what opinion is here? The security of a 5 year fix or flexibility of 2 yr deal? Am I being naive thinking that we'll still be able to get decent deal in 2 years time?

Our current mortgage is £157000 & we overpay by £250 at the moment.

Thanks everyone!

Mrs R x

ACG

In 2 years time rates will be higher than they are now. They are very unlikely to be 7% let alone 17% - I think my mortgage will be paid off before I see rates of 7% (it has 20 years left on it).

How much difference does that 1% make on your repayments?

As for the life/critical illness/Income protection front - It is something that needs to be discussed, even if the outcome is that you do not want it. She has probably not discussed it in the best way with you but if your eyes glazed over as soon as the subject was approached then she may have thought a shock tactic was the best route?

IF you do not feel like you get on with the broker, find a new one. Your not tied into using them.

mhmmhm

I would go and see a different advisor who you can trust to start with!

We are fixed for 5 years and took it out in a similar situation to yourself, but with higher LTV. I wanted the certainty of the size of payments for the next few years while we will be stretched for spare cash due to childcare commitments. In what is now 3.5 years time I feel we will be in a good place to remortgage.

Good luck!

GMS

If you go for a 2 year fix there are no guarantees that the rate you will change to will be lower than the rate of the 5 year fix.

Rates are pretty much as low as they have been though rising slightly.

If you change to a new provider you will potentially have arrangement fees, valuation fees, admin fees and legal fees.

What is the revert rate of the 2 year fix? You need to consider this as there are no guarantees you would be in a position to remortgage.

Your call at the end of the day but a rate of 3.19% is historically low and with a new addition to the family you may well feel after 2 years that the rate looks good, especially if you couldn't borrow elsewhere at the time.

Protection needs to be considered but people often don't like to think about what could happen. As long as you are aware of it you can deal with it how you choose

Orangeaid

Thanks everyone for all your replies. It's really helpful to get your advice.

If we go for the 2.19% we'll be paying £641, at 3.19 we'll be paying £723. The lenders standard rate is 3.94%. Fees are the same for both. The only thing we're worried about is if we move before 5 years we'll be stuck with the lender's assessment of how much they are prepared to lend us.

Thanks again

ACG

Did you tell the broker you may move within 5 years?

If thats a thought, then I agree with you and I would look for a deal that ties in with that.

w00519772

i was in the same predicament as you. I chose five years even though i don't intend to live there for five years - i expect there to be work opportunities elsewhere within that timeframe. However, i have to options if this scenario occurs:

1) rent the property using consent to let and rent/buy flat elsewhere
2) port mortgage to another property

the payments are higher on a five year fixed but i believe interest rates will rise meaning i will benefit in years 2+. I don't have a crystal ball though. It is a gamble.

paul101paul

Hi,


We are in a similar situation and debating the 2/5 year fix for a house purchase.

Our LTV is 42%


Our current mortgage provider (Barclays) have offered us these rates:

2 year fixed 2.09% with a £999 fee
5 year fixed 3.25% with £999 fee
5 year fixed 3.49% with no fee

Follow on rate for all:
3.89% (BBBR + 3.39%)variable for the remaining term

We foresee ourselves being in the home a number of years (ie not moving within 5 years).

1) Bit of a newbie question, but as we'd be overpaying by more than one percent for the first two years, how much would bank base rate need to reach in the last three years in order to make it worth going five years ?

2) Am I correct in thinking at the end of 2 years, we could be paying another arrangement fee for the next part of the mortgage ?


3) We are considering a loft conversion to the property of around 30K, but wanted to get in and settled for the first couple of years before we consider it. If we go back to the mortgage provider in 2 years time, will they charge us ANOTHER mortgage arrangement fee ?


Thanks in advance, it's been 13 years since I took out my last mortgage so I'm a little green.....

Paul

dimbo61

Hi Paul,
Please start a different post and not tag your question on the end of someone else's post.
Rates have never been this low and a 5 year fix gives you security until your new baby is nearly five and starting school.
Life assurance is vital and cheap for a joint policy.
Critical Illness is also something you should consider very carefully.