3 or 5 year fixed, not sure what to for the best!!

cjmatthews

Hi guys,
So me and my wife are buying a house and have been approved for a mortgage but I am in a real quandary about whether to go for a three or five year fixed. I have the choice of a 3 year fixed at 2.9% with repayments of £677 or a five year fixed at 3.8% paying £746 a month. I know it is all personal preference but would love to hear others thoughts?! We are thinking of starting a family shortly so a five year would mean I know where I stand each month with outgoings,but the nearly £2500 difference over three years makes the saver in me want to go for the three year! Thoughts please? :-)

suse*

So when do you think the rates might go up and by how much? That is the million dollar question which no one knows the answer too.

If you took the 3 year and do have kids then it might impact your abilty to remortgage as your expenses would be different then. So if your mortgage went up 2% on top of the rate once the fix ends could you afford that as well as kid stuff?

What would happen if one of you lost their jobs? Would you rather know at least you have that fixed amount to pay or the fact it might be more than that in 3-5 years. Do you have a lot of ltv in your house or if the prices dropped again would you be stuck in negative equity with no way to remortgage and could you afford that?

This isn't mean to scare you but this is the sort of things you need to think about when buying a house as 5 years so much can change for good and bad which you can't predict, so would you rather at least know the house will be that fixed payment, or have the worry of keeping one eye on the news every time they mention interest rate rises and how you can afford that and the twins

amnblog

The five year rate means you lose the potential of the lower shorter term rate for 5 years, not three. More like £4,200 for the extra security of the 5 year deal.

Thrugelmir

What's the quoted follow on interest rate for the 3 year product?

cjmatthews

4.99% which is their standard variable currently.

getmore4less

Do you need to fix?
What's the max you could afford,

What's the best tracker rate you could get.

What will the income look like when you start the family.

The issue is will you be able to get a new deal if you take either.

IMO rates are not going to go up much when they do and that could be some time.

Take the 3y and overpay or save, review in 3 years and start family then.

jamesd

cjmatthews wrote: »

I have the choice of a 3 year fixed at 2.9% with repayments of £677 or a five year fixed at 3.8% paying £746 a month.... nearly £2500 difference over three years

I think that £2500 divided by 24 months is £104.16 a month. Interest rates would need to increase enough for your monthly payment to increase by that much in the last two years before you could be worse off, while the initial gain is certain, not speculative.

At the moment the Bank of England is saying that we should expect interest rates to remain lower for longer than had been expected so I'm not expecting to see Bank Rate at above 5% for more than five years, with many years nearer 3% starting in two to three or more years.

Don't you also have the option of buying a life or mortgage tracker or a life of mortgage offset tracker? The life of mortgage deals can avoid the need to pay regular mortgage arrangement fees, something that you have to add to your cost comparison calculations when deciding between trackers and fixes.

What loan to value are you thinking of? If it's above 75% you might also think about the possible value of using the savings of a tracker or three year deal plus other saving to cut your LTV and hence your interest bill with a remortgage. That saving can help with the quality of life with at least one child planned.

amnblog

jamesd wrote: »

I think that £2500 divided by 24 months is £104.16 a month. .

One deal is 36 months, the product the OP is considering is 60 months, the difference in payment between the two products is £69 per month.

getmore4less

jamesd wrote: »

I think that £2500 divided by 24 months is £104.16 a month. Interest rates would need to increase enough for your monthly payment to increase by that much in the last two years before you could be worse off, while the initial gain is certain, not speculative.

fairly easy to do the calcs if the mortgage amount and term were given

at a guess with 1: 2.9% £677 and 2: 3.8% £746

looks like around a £143450 mortgage with a 25y term

based on that paying £746 on both after 3 years.

1: £129,431
2: £133,352 + £3921

Continue paying £746 for 2 years

2: £125,294

to break even over those 2 years the rate on 1: needs to go up to 5.4%

This assumes any fees are the same.

amnblog

With most borrowers however, it is not about the maths or the market - it is about how they feel about things.

cjmatthews

getmore4less wrote: »

fairly easy to do the calcs if the mortgage amount and term were given

at a guess with 1: 2.9% £677 and 2: 3.8% £746

looks like around a £143450 mortgage with a 25y term

based on that paying £746 on both after 3 years.

1: £129,431
2: £133,352 + £3921

Continue paying £746 for 2 years

2: £125,294

to break even over those 2 years the rate on 1: needs to go up to 5.4%

This assumes any fees are the same.

Yep that's pretty much it, 144450 as there is £99 fee.

I like the idea of a fixed for the normal reasons of knowing what my payments will be, rather than a tracker etc. I am leaning towards 3yr and then saving the difference, but that may change in a minute!