Please help...

Seker

Not sure if I am on the right board or not. My wish is to become mortgage free. I'm coming towards the end of a 5yr fix or 5.99%. I secured 3.19% on a 5yr fixed with Halifax with 60% LTV, mortgage of £75,000. Repayments a comfortable £625pcm and have reduced the term to 12yrs from 18yrs rather than having money in my pocket.


My dilemma... Am I better to stick with the above OR go for a 2yr fixed of 2.54%, bring the term to 11yrs, making payments become £651pcm and make a £100pcm overpayment?


I seriously don't know which way to go. I feel nervous about another 5yr product but not sure if I have the guts to risk a 2yr. I was aiming to make the £100 overpayment (I do the same now) to make sure that if there was a rate increase I could manage and also to shave a bit or my years off.


Can anybody offer their opinion pleaseeee

London18

Ah the crystal ball problem. Just been through this dilemma, had to choose between 2 years on 2.49% or 4 years at 3.34%.


I worked out that if I took the 2 year fix, then fixed again in 2 years time, the rate I went onto would have to be about 4.1% to have the same net impact after 4 years. ( That's without OP's). So I am gambling that I will be able to get a fixed rate of less than 4.1% in 2 years time and the lower it is, the better off I am than if I had taken the 4 year rate. Does this make sense?

I used this spreadsheet to compare them.
http://locostfireblade.co.uk/spreadsheet/Index.html


If you enter the rate for 2 years as mortgage 1, you can then play with the mortgage 2 figures to see what a higher rate over the remaining 3 years would do at the five year mark. Set the repayments to the same amount so you are comparing the same thing, don't enter OP's. You can then use the comparison tab to see what mortgage balance is after 2 or five years.

Sorry if its complicated.
Good luck!

Seker

Hello, yes it makes perfect sense. I'm trying to weigh up exactly what you did too.


Just trying to figure out the spreadsheet, can't seam to fathom it at the moment. Oh if only someone had a crystal ball ;-)

quicklee99

One other thing to consider as it may help sway the decision. What sort of fee's are you paying? if you fix for 2 years, in 2 years time you'll have to sign up for another deal and pay more fees, unless you are going for a fee free deal. Don't just look at the APR, factor in the cost of the fees too

London18

Oh yes fees, the spread sheet allows you to factor these in at the start of the mortgage but not later if you had to pay them again. I didn't have to this time, as remortgaging fee-free with same lender.


Seker, Assuming you put the 2 year fix details on Mortage 1 and the 5 year details on mortgage 2.


Go onto the mortgage 1 'monthly table' tab,. After your 2 year fix ends, change the interest rate to a higher number (using crystal ball to guess what it might be) and copy that down 3 years to the five year point (to match the same end period for mortgage 2). Now go to comparison tab. At the five year point, see which mortgage is the lower balance.


You can do this endlessly with different interest rates for the last 3 years, changing it up or down at any point in time you fancy! For example I did one based on moving to SVR after 2 yeas, using current SVR, several on rates between my new fixed rate and current SVR, one on just over current SVR, and one a whole percentage point over current SVR. All except the last one still worked out better than the 4 year fix. Of course this does not factor in having to pay fees again in 2 years time so if you did, it might reduce the positive impact if any.


Sorry, did say it was a bit complicated. I spent several working through various permutations! Call me a geek.


I think the other big factor is understanding your risk profile. As you said, do you have "the guts" to wager on the unknown after 2 years, or do you take the higher rate and later feel trapped? I know I hate feeling 'tied down' so 2 years is all I can commit to! If I then want to move, I can do so without the hassle factor of trying to port a fixed rate mortgage, I'm prepared to just start from scratch with a new application.

Seker

Hello,
Thank you for your replies. There are no fees to either product.


Tanks for that London, I really need to have a play around with the spread sheet, hopefully tomorrow. All I know is that I will struggle to go over £750pcm at the end of the 2 or 5 year fixed. That is the bottom line of what I have to play around with should I go for the 2 year and the rates go up to make the repayments to somewhere near that mark - if you get my meaning.


Wish I was good with figures! hehe...