5 yr fix at a high rate or 2 yr at a lower rate?

Guapa1

Hi all,
I'm a FTB and will be getting an 100% mortgage. I've got an mortgage in principle from a broker with northern rock which is fixed for 5 years at 6.79 then variable at 7.75
I've been quoted from another broker a fixed mortgage for 2 years at 6.19% then varible at 7.85. It hasn't been agreed in principle yet.

Any suggestions on which one to take out? I quite like the fact that my mortgage will be fixed for 5 years, but i think that the interest rate is quite high.

kingkano

FEES!!!

Please check the fees on both these rates. And remember when calculating that the 5yr rates fee should be averaged over 5yrs. While the 2yr rates fee should only be averaged over 2yrs (ie 24 payments as against 60). This will affect the decision vastly!!

There is valuation, application, high lending and product fees.

Guapa1

Thank you for replying King Kano.

Both fees are £1995. Valuation on the 5 year deal is 505.50 and free on the 2 year one. I'm a bit confused now because the way it's written on the key facts paperwork the fees are over the entire length of the mortgage?

dannyboycey

I don't get the continued obsession with fixed rates. FTB'ers are either overly cautious or they have a 'live for today' mentality. You may be better with a discounted or tracker, but it depends on whether you can cope with uncertainty and risk. Rates could go to 6.25% (6.5 at the most) over the next couple of years but that's it in my opinion.

dannyboycey

Judging by your signature - I would think VERY carefully about what you can afford!

kingkano

Guapa1 wrote: »

Thank you for replying King Kano.

Both fees are £1995. Valuation on the 5 year deal is 505.50 and free on the 2 year one. I'm a bit confused now because the way it's written on the key facts paperwork the fees are over the entire length of the mortgage?

Yes the fees are added to the mortgage basically. But when comparing deals, since the bank uses the fees as part of the deal it creates, you should also price this up into the deal to compare like-for-like. In this case 1995 over 5yrs is £33 a month, over 2yrs its 83 a mth.

dannyboycey Alot of FTB I guess want the stability of their repayments being fixed. They're also (by definition) new to the world of house buying/owning and don't know what they are doing or what to expect. Alot of 100% mortgages or affordability mortgages will only agree on a fixed rate (to protect the buyer supposedly).

Guapa1

Thank you for replying Danny. The reason I would like a fixed rate is because I'm cabin crew and our salary changes monthly, so I'd like to know what I'm paying out monthly.

pcwilkins

Do you mind telling us the amount you will be borrowing and some details of the property you're thinking of buying?

Peter

Guapa1

Not at all Peter. I have worked out that I can afford a mortgage of 150k over 30 years. Apart from the £200 a month for my loan and £110 a month to run my car, I have have no other outgoings.
As I am looking to purchase near the London area, I'll be looking for a flat, so I am factoring the fact I'll have to pay ground rent into the equation too.

pcwilkins

Guapa1 wrote: »

Not at all Peter. I have worked out that I can afford a mortgage of 150k over 30 years. Apart from the £200 a month for my loan and £110 a month to run my car, I have have no other outgoings.
As I am looking to purchase near the London area, I'll be looking for a flat, so I am factoring the fact I'll have to pay ground rent into the equation too.

Ok. If you borrow £150k over 30 years at an average interest rate of 7.5% (probably will be higher in reality) the total amount you will repay will be around £370k. If the average interest rate creeps up to 8% this increases by another £16k.

So you'll be paying probably at least £220k in interest or an average of around £7,300 a year. That equates to around £600 per month.

Not sure what rental prices are in the area you are interested in, but renting may well be a better option for you. Especially as flat prices are not predicted to rise much.

By taking on this mortgage you will be agreeing to pay £370k for something which at the moment is worth only £150k. To me that seems like a risky investment!!!

Sorry if you've heard all this before and still want to buy. If that's the case I would advise going for the longest fixed rate period but at the end of the day it's your decision and your risk!!!

Peter

Guapa1

Thanks Peter, I am thinking long and hard about this, I've just had enough of renting. I've had some awful landlords, and now I've finally settled into somewhere, the owner is selling up. I just want somewhere to call home you know?