2-year fixed at 2.09% or 5-year fixed at 2.99%?

TerminstorUK

Hi all,

I've come to the end of my initial 5-year discount variable rate mortgage and it's time to choose what to do next.

Comparing the market shows my lender is still amongst the best deals and changing product with them attracts no fees after speaking on the phone with them.

Their discount variable rate for 2-years isn't attractive at 1.99%, so the toss-up is between 2-years fixed at 2.09% (£401 per month repayments) or 5-years fixed at 2.99% (£435 per month).

Both are a 20-year term and are cheaper than the 3.89% (£475 a month) that I currently pay.

What is everyone's predictions - will interest rates really soar that much in 2-years / what would you recommend?

Many thanks for any assistance in advance!

TerminatorUK

Just come off the phone with the lender, I ended up talking myself into the 5-year fixed rate .

I know the chances are pretty high that it'll be paying more in the long-term and that interest rates won't sky-rocket, however, the difference is around £2000 over the 5-year period (assuming that the 2.09% 2-year fixed rate continues unchanged) which isn't massive in mortgage terms compared with the peace-of-mind it offers being at a fixed amount for the duration of the term.

The other factors which swayed my decision were:

- In 5-years time, I will have a < 60% LTV on the property (assuming property price remains the same or increases) and therefore I will be able to negotiate a better rate then
- 5-years allows us enough time to improve several aspects of the property we have planned and therefore may help with revaluations at the end of the period if we wanted to switch provider (I'm not sure if this is true or not)
- If I get used to low £401 repayments, it might be difficult to accept / live with increased rates at a later stage when I'm used to more disposable income

getmore4less

Those rates payments give slightly different amounts.

assume £78500 paying £435pm

after 2 years you owe
1. £71196
2. £72586
after 5 year the 5 year fix would be £63027.

To break even you needed a new rate of 3.71% or less for 3 years

Thats quite a hike from current rates on offer.

TerminatorUK

Thanks very much for your reply.

Not sure if I follow you - the 5-year fix rate I've got was 2.99% with no fees - this is under the 3.71% rate you stated.

The 3.89% was the discount variable rate that I have just moved off...

getmore4less

If you took the 2 year rate you would need a rate under 3.71% for the next three years to be better off than the 2.99% for 5 years.

You are in effect betting that rates will go up over 1.5%(ish) in the next 2 years by taking the 5 year.

I think the general consensus is that is very unlikely with most saying nothing this year.

£1400 down in two year the power of overpayments,

TerminatorUK

Ahh I see, the penny has dropped - sorry.

Yup, I see what you are saying and it is definitely looking likely that I'll end up paying over the odds - in two years it should be easily possible to get 2-years fix for under 3.79%.

Still, things can quickly change so there is some peace of mind with the longer term and knowing what I'll pay over the next hslf-decade.

getmore4less

TerminatorUK wrote: »

- If I get used to low £401 repayments, it might be difficult to accept / live with increased rates at a later stage when I'm used to more disposable income

This reasoning comes up more often that it should.

I will take the higher rate so I get used to paying more, rather than just paying more on a low rate.

Jhoney_2

I'm in the same situation, but cannot work this stuff out at all. I am looking at my own bank first and cannot work out which is the better fixed rate. 5yr 2.35 vs 10yr 2.94.

I like fixed rates and my intention is to be mortgage free in 10 yrs with a manageable overpayment of the allowable 10pc. I have a backup plan if necessary but that's the plan. costs etc are the same. Is it a good deal on the face of it or are there many better options? I am seeing a broker later in the year, but this baffles me.

Any help appreciated.