2 or 5 year fix

woohoo

Hi,

I just can't decide whether we should get a fixed rate for 2 or 5 years???? 5 years seems like such a long time but the reassurance of knowing our payments wont go up is good.......but would we be better opting for 2 years as things can change??? What do people think?? I know the decision is ours but what would you do???. I really can't decide??? Thanks for looking

glen70

i am in the same situation we could get a good deal at say 6.0% only for the rate to drop to 5% next year:eek: i am going for 5 years and take a gamble that way at least i know what to pay for the term.

dwsjarcmcd

As a personal decision, I would go for a 5 year fixed rate, for several reasons
- If you can afford it now, you can afford it for 5 years (obviously I am assuming you current circumstances remain).
- You won't have the hassle of remortgaging and probably paying large arrangement fees every 2 years
- Interest rates can go up over the next couple of years, as well as down, so you could be better off. Remember interest rates are still historically low.
- Longer term fixed rates are good value, when compared to shorter rates
As I said, only my personal view.

David

JoeK_3

I would go for a 5-year capped.

This way you would limit the upside and enjoy any downside.

Good luck

JoeK

homer_j_3

if you intend to stay in the property for 5 years then a 5 yr capped, as JoeK said, may be the best as it puts some protection of rising rates but will come down if interest rates do decrease over the next 5 years.

If you dont want to commit to a 5 year deal or the property for that time, you could look at 2 or 3 years. You will normally have to pay to get out of a deal before it ends so you need to consider this aswell.

cm233lh

It depends on your circumstances. Could you survive if rates went up and stayed up for 5 years? If not, you'd better fix for 5 years. If you've got some slack in your budget you might want to go for a tracker that would give you the benefit of any rate drops. If you expect your circumstances to improve significantly in the next 2 years then you could try the 2 year deal. Either way, when you come off the fixed rate you'll be back to the market again, so I'd say go with a cheap tracker if you can afford any rate rise.

MortgageMamma

I would go for the five year capped. I am a big fan of capped rate products and not many people even know they exist. unfortunately there is only about 5 lenders marketing them at present and I feel that if more people were aware of the benefits of a capped over a fixed then more people would want them and consequently more lenders would then market them. I have been on a mission to raise the profile of capped rate mortgages for some time now, and will continue to do so

dwsjarcmcd

The reason there isn't that many capped rates on the market just now is that the price of lenders pay to buy caps makes them prohibative, which means customers won't pay the price differential for them.

MarkyMarkD

I don't honestly think, in today's market, that anyone will pay the premium rate associated with caps.

That's not to say that they aren't a good idea, and I don't disagree with MM's promotion of them.

But most people are so rate-focused now that they won't see the benefit of (say) a 6.39% capped compared to a 5.99% fixed.

The other HUGE issue with caps is that when they were previously popular they were capped at the lower of the capped rate and SVR. That didn't seem so bad when rates were moving up and down by maybe 4% in a year - paying SVR which is around BBR+2% still might be OK for the benefit of the reductions if rates fall.

But now that rate volatility is actually relatively far lower, and people have becomed accustomed to paying nothing like SVR, I see no sales at all for mortgages with a cap based on SVR.

And if the cap is NOT based on SVR but (say) BBR+1%, the profitability for the lender is so much less that the initial pricing appears even less good value.

I might easily be proved wrong, but I don't see caps working until people become convinced that rates are only going to go down, and even then I don't think they'll pay the price premium necessary - once they believe rates are only going to fall, they'll simply buy a tracker.

MortgageMamma

to be honest with you guys capped rates are becoming more and mroe competitive and lenders are starting to see an opportunity in the market

Abbey, Accord, Woolwich, Skipton,, Hinkey and Rugby, Marsden Building Society - I think in the current uncertain climate of rate rises and speculation about being at the top end of cycles mroe and more people will consider these products IF THEY ARE PUT IN FRONT OF THEM AND EXPLAINED PROPERLY. I believe there are lots of Lazy advisers who just push for fixed because its easy.

At present we are looking at caps of 6.19% with a £795.00 fee over 3 years, I hardly think that is uncompetitive.

MarkyMarkD

I presume you mean (having searched for it!) the Hinckley & Rugby tracker, which is actually end dated 28/02/2010 and hence is only 2.5 years.

The fact you call it 3 years makes me guess that they've had this product on offer for 6 months and it's not sold at all, which is why it's still knocking around with the same end date.

If you compare 6.19% with the rates on offer 6 months ago, it stacks up far less well than it does compared to rates now - in other words, it wasn't as competitive by a long way. The capped premium would have been more like the 0.40% I suggested, or maybe even 0.50%.

Having said all that, you are quite right that this is a very good product - albeit that it's only cheap for the reasons I've expressed above.

The reason it's great is that the underlying rate is only BBR+0.20%. Which makes it almost identical to the Woolwich BBR+0.18% lifetime tracker with no fees ... which means that you get the cap in exchange for the £795 fee + valuation fee.

Another amazingly good thing about this mortgage is that further advances are also available at the same rate during the capped term. That's worth quite a lot to people who are intending to get major works done on their home, for example.

I still don't think people will, as a rule, pay the extra amount necessary for a cap. I also agree with you, MM, that advisers probably can't be bothered to consider capped - it's easy to establish if the customer wants variable or fixed, and then choose the best buy for them out of those very well-served markets. Having the sort of discussion which would lead capped to be the right choice is not going to be quick or easy.

But if people want one right now, the HRBS one is a good one to choose!