Which fix is best?

Gardeners

Trying to sort out our very first mortgage. We've been offered a 2 year fix at 2.89% or 5 year at 4.28%, both with £1000 arrangement fee.
I realise interest rates will go up, but we could really do with the smaller payments to start with, but is the risk too great?

betmunch

There is no answer to this question.

You must do what you are most comfortable with.

homehunter

Frustrating isn't it? We are coming to the end of a 5 year fix at 5.69%. All the advice we took in 2009 said to expect rates to go up. They didn't. Of course we wish we knew then what we know now etc but at the time we wanted the security of knowing what we would py each month. We knew we could afford the payments. We also started overpaying each month a year in. The other thing to think about is if you remortgage in two years - another fee plus potential higher rate nearer to 4/5%? No one knows what will happen, you just take your chances.

RickyC_IFSWP

Gardeners wrote: »

Trying to sort out our very first mortgage. We've been offered a 2 year fix at 2.89% or 5 year at 4.28%, both with £1000 arrangement fee.
I realise interest rates will go up, but we could really do with the smaller payments to start with, but is the risk too great?

What you should do is work out what the monetary amount is on a monthly basis. If the extra 1.39% on the 5 year deal works out to be say an extra £100 per month, then you have to ask yourself, is that extra money worth paying for the extra security/certainty I have for the next 5 years?

I'm sure you're well aware of the recent BoE hint at interest rates rising later this year. If you believe this will happen, then it'll make sense to fix it for longer. It's all to do with your preference and belief.

Regarding the remortgaging side of things when the term ends on your deal, usually your existing mortgage provider won't charge you arrangement fees for switching the product with them.

Yorkie1

RickyC_IFSWP wrote: »

What you should do is work out what the monetary amount is on a monthly basis. If the extra 1.39% on the 5 year deal works out to be say an extra £100 per month, then you have to ask yourself, is that extra money worth paying for the extra security/certainty I have for the next 5 years?

I'm sure you're well aware of the recent BoE hint at interest rates rising later this year. If you believe this will happen, then it'll make sense to fix it for longer. It's all to do with your preference and belief.

Regarding the remortgaging side of things when the term ends on your deal, usually your existing mortgage provider won't charge you arrangement fees for switching the product with them.

Re. the last paragraph, if the product has a fee then it won't be waived for existing customers on a transfer.

Thrugelmir

Gardeners wrote: »

I realise interest rates will go up, but we could really do with the smaller payments to start with, but is the risk too great?

What's the follow on rate when the 2 years is up?

bex0309

Can you shop around? We went with a broker and the the best 2 year deal was 2.99% and the 5 year was 3.44% so we went for 5 years.

I think the decision would have been harder if the difference was greater (like yours).

We like knowing we have a fixed cost, it is whether that is worth the extra % to you....

bex0309

Oh, and no arrangement fee, £250 cashback, they pay for valuation and a portion towards legal fees - we were very pleased with Santander (if you don't mind waiting AGES for approval).

Gardeners

Follow up rate is 5.49%

attila_

4.28 for 5 year sounds high. We locked in last month at 3.25 for 5 years with post office. Try them.

Given Bank of England announcement last week I'd lock in long.

Yorkie1

5.49% as a follow-on SVR is very high compared to some lenders.