2 year or 5 year fixed?

Xeorix

So we're looking at a house and we can decide between a 2 year or 5 year fixed. The 5 year works out at about £100 more a month than the 2 year fixed.

The money isn't an issue, we're just stuck between 2 or 5. With the 2 year one, we could essentially "save" ourselves £2,400 if the interest rates don't rise, however we would then need to go and remortgage again.

At the moment we're FTB so the product fee is £500 and without the FTB discount its £1000. When you remortgage, do you need solicitors, mortgage brokers etc or do you simply need to pay the lender the product fee? If its just the product fee, then we'd be saving £1,400 if rates don't rise, however if theres extra fees to take into consideration then it becomes less worth it to take out a 2 year

If we go for 5 years, we would be saving money if the rates rised over 1%, however could end up paying £6,000 more if the rates don't rise

Dan:_4

2 years if I were you.

Xeorix

Dan: wrote: »

2 years if I were you.

Any particular reason why?

Dan:_4

Because you will save £2400. You can not see into the future - your house could be worth more in 2 years pushing you into a better LTV attracting better rates even if the base rate has increased.

This is not advice...just what I would do

Thrugelmir

Unless the new product on remortgage includes free legals etc.

Then switching to a new lender will incur you a mortgage redemption charge (existing), legal fees, valuation fees along with potentially product fees.

So there's a £1k easily spent.

Carney is suggesting a base rate rise of 2% to 2.5% by the end of 2017. So thinking that rates will remain this low isn't advisable. They are only at this level due to the financial crisis and weakness of the banks balance sheets. So the direction of travel is only in one direction. Not least to avoid a secondary financial crisis. As the UK is far from out of the woods even now. The consumer debt overhang is going to take some years to unwind.

Dan:_4

Thrugelmir wrote: »

Unless the new product on remortgage includes free legals etc.

Then switching to a new lender will incur you a mortgage redemption charge (existing), legal fees, valuation fees along with potentially product fees.

So there's a £1k easily spent.

You don't need to switch lender you know. And why would the OP incur a redemption charge at the end of the 2 year fix?

Thrugelmir wrote: »

is suggesting a base rate rise of 2% to 2.5% by the end of 2017. So thinking that rates will remain this low isn't advisable.

Hardly much of an increase over the next two and a half years is it, and its highly possible it will take longer then 2017 to even reach 2.5%

Thrugelmir wrote: »

are only at this level due to the financial crisis and weakness of the banks balance sheets. So the direction of travel is only in one direction. Not least to avoid a secondary financial crisis. As the UK is far from out of the woods even now. The consumer debt overhang is going to take some years to unwind.

even more reason that rates will not be going up anytime soon.

Thrugelmir

Dan: wrote: »

1. You don't need to switch lender you know. And why would the OP incur a redemption charge at the end of the 2 year fix?



2. Hardly much of an increase over the next two and a half years is it, and its highly possible it will take longer then 2017 to even reach 2.5%



even more reason that rates will not be going up anytime soon.

1. There's no guarantee as to what an existing lender would offer. Merely highlighting the downsides of rate chasing.

2. If the mortgage is over a £100k. Then the differential between a 2 and 5 year fix is wiped out by a 1% rise. Which suggests that a 5 year fix makes more sense.

3. On that point we shall have to disagree. Not least that 5 year fix rates have been drifting upwards for a while. As all the little levers that are being pulled are having a cumulative effect on market rates. The BOE is merely following behind raising the drawbridge behind the lenders. So there's no going back.

attila_

5 year definitely. Rates will go up end of.

getmore4less

If the payment is not an issue why fix at all.


fixing only protect for a short period and you are then into the fee/change/followon rate cycle.


what's the best tracker rate you can get?

RavingMad

If the tracker is an option and it's not more than the 2yr rate, then I agree with getmore4less.

If not, I'd go with the 2yr. I'm only guessing that as you're FTB, you're getting 90% LTV (unless you're getting HTB) so not getting the best rates and you're pretty much servicing the interest at this stage of your mortgage.

Picking a lower rate means that that monthly payments pay off a tiny bit more of your mortgage every month, so you would be saving more than £2400 over the 2 years. If you were to overpay the £100 every month, then you would have less outstanding in 2 years than you would have if you chose the 5 yr option.