Opinions- 2 or 5 year fix in our situation

bitethebullet

So our current deal with Natwest is ending and have been looking at the deals they can offer. We would ideally like to stick with Natwest as we've been happy with them and it would avoid having to pay new arrangement fees etc. and reapplication with another lender (the new mortgage lending assessment criterion make me nervous).

Our situation:

-£100000 loan on a property that was valued at £151000 when we bought it in 2008. So something like 66% LTV
- We've done a large extension but not sure it is worth a revaluation as their desk top valuation was actually lower than what we bought the house for (although I know houses on the street without extension fetch aroun 180K and extended around 210k)
- I will be taking maternity leave (hopefully a year) from October this year

Our options are
- 5year fix at 2.98% no fee
- 2 year fix at 2.34% no fee, payments around £30 less a month

If we took the 2 year fix we could afford to overpay by a substantial amount up until I go onto maternity and would definitely fall into a lower LTV category in 2 years (50% hopefully) and then be able to access some good deals. The advantage of this is that we could aslo minimise outgoings when I am on maternity. Alternatively we fix for 5 years, overpay a little and have some security that interest rates wont affect us.

You can probably guess we are swaying towards the 2 year fix but would love some opinions!

stephenni1971

0.2% difference between 2 year and 5 year fixes and you're thinking of going with the two year?

bitethebullet

Oops! 2.34%- I've edited it. Still quite a small difference but the £30 we could save we would overpay and would help us make a dent in the mortgage during those 2 years.

amnblog

£30 a month is a consideration and you are about to go on maternity leave??

bitethebullet

Yes it's not an insignificant amount of money when our mortgage is only £400/month. Also it equates to thousands of pounds saved in interest if it is paid as an overpayment. I'm not sure about the tone of your reply- yes I am going on maternity leave at 100% then 90% of my salary, my husband also works- affordability is not a problem as we did not over stretch ourselves when we took out the mortgage. It's not about affordability at the moment, it's about picking the best deal which will allow us to make as much impact over the next couple of years. The fact that I'm going on maternity is not important when I am changing deal with Natwest and not changing term or the amount I'm borrowing. I guess I would be more confident in fixing for 2 years if it weren't for the fact that we have the elections and even a potential EU referendum on the cards. I'm guessing interest rates are even harder to predict in this climate? Does anyone have anything useful to add?

Contemptuous

Will you not have childcare costs to consider once the two year fix came to an end?
I have just gone on maternity leave and chose a five year for rate for my new mortgage. This was for the peace of mind of knowing what my payments would be throughout having to pay for nursery. By the time the fixed rate period ends the baby will be in school. Worth thinking about, unless you have no childcare expenses.

bitethebullet

We already have a child who will start school when the next arrives so childcare does not change fortunately, but good point.

termhero

amnblog wrote: »

£30 a month is a consideration and you are about to go on maternity leave??

This site can be really helpful.


The above is not.


I wish brokers would refrain from the above type of reply and just actually reply to what is asked.


On topic, I would go for 2 year fixed in your case.

getmore4less

How much can you afford while on maternity?


£100k paying £400pm must be a long term

0% 21y
1% 24y
2% 27y
3% 33y
4% 45y(the follow on rate)


You really need to crunch some numbers


looks like the 2y fixed 70%LTV fee option is £995 fee 1.69%
paying £400pm after 2 years

£100000 @ 2.34% £94968
£100995 @ 1.69% £94707

Fee rate is better over 2 years by £140.

NW 60% LTV seems to be 0.2 better than the 70% so not that much better.

What are the overpayment limits before ERC?

For the 5y fix. at 2 years and 5 years
£100000 @ 2.98% £96254 £90200
£100995 @ 2.65% £96638 £89655

Don't know enough about your finances with maternity to call the 2-5 choice

If rates stay low then the 2 year fee @ 1.69% with another retention deal in 2 years with a load of overpayments to get below 60% LTV has merits.

The followon rates are 4% so if there are issues with getting a new retention deal that needs factoring.

DO NW have a lifetime tracker option? I only saw 2y ones.

EDIT: to add

If we took the 2 year fix we could afford to overpay by a substantial amount up until I go onto maternity and would definitely fall into a lower LTV category in 2 years (50% hopefully)

To reduce the £100k(66% LTV) to £75k(50%LTV) with overpayments in 2 years on the 1.69% with fees would require a payment of £1200.

Can you really afford that? or are you factoring in a higher valuation?

bitethebullet

Thanks for your reply. Yes we originally took out a long term to make it affordable as possible while my husband got his business established (we were young so we have 29 years left on a 35 year term!). We are now in a much better financial situation than when we first took it out as I am more senior and my husband's business is established, however we thought we could keep things simple and over pay to reduce the term rather than reducing the term per se.
I think we could afford to overpay by £500/month up until maternity and then drop to an overpayment of £200 (we're allowed to overpay by 10% of the balance). Yes I am factoring in getting a revaluation at the 2 year point which should bring us into the 50% LTV category given the extension we have added.
There is a lot to think about!

getmore4less

Just remember whatever you chose to check the fee rate against the no fee rate.