2 / 3 or 5 year fixed rate?

bells_on_it

I'm after advice on my current mortgage.
Its split into 2 parts as I borrowed additional when i moved house.
One rate is at 4.19% fixed until June 15
The other is on a variable at 4.49% (since July)
We have about 85% LTV

I was originally going to try leaving the 2nd part on a variable to try and tie the 2 mortgages together however I've been hearing alot of talk on interest rates rising so I'm planning to fix in?? But can't decide on what term? There are a few on offer?

3.05% fixed to Sept 16
3.25% fixed to Sept 16 (not sure what the difference is)
3.69% fixed to Sept 17
3.99% fixed to Sept 19

The first rate will save me around £88 a month and the highest saves £32 (this is based on only part of my mortgage so in a year will look to do similar with the other part so may have further savings or might end up paying more).

For the short term we could do with freeing up some money as want to pay back some home improvements we had recently and also may be on mat leave next year depending on how things go but my concern is whether interest rates are going to spike massively and in 2 years I'm clobbered with a ridiculous mortgage?

Does anyone have an opinion on whether the increases are only going to be small? Or should I protect myself and fix for 5 years?

Suarez

I'm no expert but I think you need to put the product fees too to make an informed decision. (Which is probably why your 3.05% differs to the 3.25%.

kidmugsy

Nobody knows. There is a distinction between people who know they don't know, and people who fool themselves that they do know, but that doesn't help you much. That's because there's precious little help that can be given. The chart I've linked to shows that for five years people have expected interest rates to rise substantially and quickly. They've been wrong every time.

http://blog.redington.co.uk/Articles/Dermot-Dorgan/May-2014/WAITING-FOR-RATES-TO-RISE.aspx

bells_on_it

3.05% fixed to Sept 16 - Booking Fee: £199.00 Arrangement Fee: £800.00
3.25% fixed to Sept 16 Booking Fee: £199.00 Arrangement Fee: None
3.69% fixed to Sept 17 Booking Fee: £199.00 Arrangement Fee: £800.00
3.99% fixed to Sept 19 Booking Fee: £199.00 Arrangement Fee: £800.00

Fees are largely the same apart from the 2nd 2 year deal.

I just don't know whether its best to go cautious with a long term fix or whether interest rates aren't realistically going to increase dramatically over the next few years

JustinR1979

I went 5, so I know what I'm paying. At the end of that mortgage will have come down a good chunk, wages gone up, and will be in a good position for when they are higher as will be taking on a much smaller mortgage on better pay.. Also to save keep renewing with all that hassle and possible cost.
They are only going to go one way.
Will be a valid argument for each option you have listed though

bells_on_it

Thanks for this, good analagy, I definitely fall into "don't know!" but the link is interesting since my concern is that the forecasted increase will be low therefore will I be better off taking the lower fee as I might still get a good rate in 2 years time? Though also arrangement fees and booking fees are bugging me now... as what I'm set to save could be negated if I've got to do 2 deals in that time period as the 5 year one???

kidmugsy wrote: »

Nobody knows. There is a distinction between people who know they don't know, and people who fool themselves that they do know, but that doesn't help you much. That's because there's precious little help that can be given. The chart I've linked to shows that for five years people have expected interest rates to rise substantially and quickly. They've been wrong every time.

http://blog.redington.co.uk/Articles/Dermot-Dorgan/May-2014/WAITING-FOR-RATES-TO-RISE.aspx

bells_on_it

Good point about in 5 years will have paid alot more off and hopefully earning more, hadn't thought of it that way!!

Tough decision!! I might be leaning more towards 5 since now I'm thinking if I do 2 then i'll have to pay arrangement and booking fee again in 2 years which will be about 1k which will wipe out most of the savings I'd get from doing a 2 year deal

JustinR1979 wrote: »

I went 5, so I know what I'm paying. At the end of that mortgage will have come down a good chunk, wages gone up, and will be in a good position for when they are higher as will be taking on a much smaller mortgage on better pay.. Also to save keep renewing with all that hassle and possible cost.
They are only going to go one way.
Will be a valid argument for each option you have listed though

kidmugsy

bells_on_it wrote: »

Tough decision!! I might be leaning more towards 5 since now I'm thinking if I do 2 then i'll have to pay arrangement and booking fee again in 2 years which will be about 1k which will wipe out most of the savings I'd get from doing a 2 year deal

That's a good argument, not least because you can make it without having a crystal ball.

dimbo61

" mat leave next year "
So looking to remortgage when baby is 12/18 months old ( childcare) and wife maybe part time or off work!!!! on a 2 year deal.

How much are you borrowing? How much have you got in savings ( just in case?) Income of both Mum and Dad to be !!!!!

If you took a 5 year fix the baby would be at nursery or starting school

JustinR1979

That's a good point, you want certainty in your payments whilst you have all the expenses of raising a child to school age!

bells_on_it

Good points again, really appreciate your advice I think my mind is definitely made up, so many pros to taking to long deal