choosing between 2,3 & 5 yr term

getmore4less

MJP43 wrote: »

There are no signs interest rates are going to rise soon and when they do it will be in small increments........that is the perceived wisdom anyway. But truth is nobody knows for sure.

Personally I'm not a gambler and would go for the 5 yr fix and be happy with the security of it.

Many people get the risk assesment wrong, think it is any rise they are protecting against.

With the 2 year you can take a hit of a rise of around 2%.

By going with the longer fix your still a gambler, just that the rates will go up by more than 2%.

For the OP that is costing £3795. (less any fees at change)

tarab1986

Thanks for all the advice. I think we will go with the 5yr rate:beer:

pathtofreedom

Every time you remortgage there are also fee's involved so what is the rate once the fix runs out. If the rate is still low and you don't have to remortgage away you can save on those costs.

How stable are your jobs? Do you have kids or want some which could mean higher costs and lower income? Just because you can get that rate now life might change in that time so you don't meet the affordability rules to remortgage so again if the rate goes up a lot once the fix ends then you're stuck, also if you end up in negative equity some how you won't be able to remortgage.

Are you planning to over pay which will help reduce the overall interest you pay for the term of the mortgage, so even with a slightly higher rate you might be able to reduce the whole cost if you check how much you can over pay in a year.

I was caught by negative equity and changing jobs so couldn't remortgage for years. I was lucky I had overpaid from the start so even though it took years it was still less time than if I hadn't overpaid. For my next mortgage I want a 10 year fix as even though it might be a higher rate than a 2 year, if I need to change jobs or go self employed I don't have to worry I won't be able to get a new mortgage, also I won't have the extra fees to go through getting a new mortgage with someone else. If I work at it right I might be able to pay the lot of in the 10 years as well then.

audigex

PathToFreedom, I've been working the numbers for that kind of situation lately, too, as I was worried about being able to refinance after 2 years

A 5 year term makes a LOT of sense if your original LTV is 90% or higher, as a 2 year term still leaves you well above 85-90% LTV and can make re-mortgaging hard. It also makes a LOT of sense if you can't overpay (or can't overpay much) as the first 2 years end up paying off a fairly small amount of capital. It's not much better after 5 years tbh, but it is better.

On the other hand once your initial LTV gets to 85%, either term will push you down to around 80% LTV (5 years on it's own, or 2 years with slight overpayment). Once you hit that point, I can't see many problems remortgaging. If overpaying, it becomes less of a concern as you pay off so much more capital early on, and quickly move into "safer" risk categories.

I'd also tentatively suggest that negative equity is unlikely at this stage, and that with interest rates so low we're quite fortunate in how much capital we can pay off with even moderate overpayments.

sebtomato

With HSBC now offering 5 year fixed mortgages for 1.99% (+ fees), they clearly think that interest rates are not going to move that much for next 5 years. Therefore, for the next 5 years, I would get the cheapest tracker possible (if it can beat 2%). Otherwise, I would get a fixed rate mortgage over 10 years.

amnblog

sebtomato wrote: »

With HSBC now offering 5 year fixed mortgages for 1.99% (+ fees), they clearly think that interest rates are not going to move that much for next 5 years.

They are more likely to be thinking it will get them on the cover of the Daily Mail.

sebtomato

Well, it could be a loss leader (or should I say a loss lender), or other lenders will follow suit next week. We shall soon see...

tarab1986

Our LTV will be 80%. We are hoping to overpay as its a 30yr term and don't want to be still paying out mortgage at 59. Jobs are stable (mine more so than my partners, but I am the higher earner). No kids atm but will have some one day - hence aiming to overpay whilst it's just the 2 of us!

Thrugelmir

sebtomato wrote: »

With HSBC now offering 5 year fixed mortgages for 1.99% (+ fees), they clearly think that interest rates are not going to move that much for next 5 years. Therefore, for the next 5 years, I would get the cheapest tracker possible (if it can beat 2%). Otherwise, I would get a fixed rate mortgage over 10 years.

HSBC has no problem finding capital to lend. Having access to Asian markets. Also remaining dregs of Funding for Lending scheme are still being filtered out.