2 Year Fixed vs 5 Year Fixed Mortgage? Today's News of Interest rates Going up ??

kingstreet

We get paid exactly the same for a two year fixed as we do a five year, or a tracker. Lenders pay based on mortgage amount, not product selected.

When commencing with a new client, our first email after doing affordability attaches three example KFIs, two year, three year and five year fixed rates to give a flavour of the rates and monthly costs.

dekoder

kingstreet wrote: »

We get paid exactly the same for a two year fixed as we do a five year, or a tracker. Lenders pay based on mortgage amount, not product selected.

When commencing with a new client, our first email after doing affordability attaches three example KFIs, two year, three year and five year fixed rates to give a flavour of the rates and monthly costs.

I think caprikid1 meant that after 2 years they might get business from the client again. Though in these circumstances the advice seems valid.

amnblog

The advice has to be valid or we get put out of business.

Landofwood

kingstreet wrote: »

We get paid exactly the same for a two year fixed as we do a five year, or a tracker. Lenders pay based on mortgage amount, not product selected.

Playing devil's advocate, if your client takes out a 2 year, then in 2 years they'll be in touch with you to remortgage.

kingstreet

Landofwood wrote: »

Playing devil's advocate, if your client takes out a 2 year, then in 2 years they'll be in touch with you to remortgage.

It can work like that, but as newbuild specialists, we don't need to generate such business to survive.

If the existing lender is offering a retention product better than that available by remortgaging, we suggest they return to the lender directly.

Out of the 250 or so cases we do every year, perhaps 10 - 15 are product transfers or remortgages for existing clients.

I'm sure many people pick the two year option when they see how much cheaper that would be compared with the three or five year and we would discuss the implications of rates being higher when such products end.

Jon_B_2

Even more hints that rates are going to be slowly making their way upwards at the turn of the year with rates of 2% by the end of 2017.


If that is the case and you aren't planning to move short term then you'd be mad IMO to ignore a five year fix. My 2.84% over 5 years should work out quite nicely.

mrginge

Wow this news is dynamite.

Interest rates expected to rise very slowly over the next three years, starting at some undetermined point in future.

How will the country cope?

xHannahx

A 5 year fixed may see a bigger hit on the monthly payment at the end of the 5 years. If you are on the variable rate sooner as rates rise you will have gradual increase. If you have a long fixed term you could end up with a big increase in 5 years which will hit harder.
although the 5 year fixed will probably save you more in the long run, are your finances stress tested to cope with a potential large increase in 5 years rather than a gradual increase every few months from 2 years time.
If it was to raise 0.25 every 6 months for example on a 100k mortgage, after 2 years of fixed your variable will see a £100 increase after 2 years then £25 increase every 6 months. On a 5 year you would have a £250 increase after 5 years which will be far harder to take if you get used to your fixed payments and available spending.

Jon_B_2

xHannahx wrote: »

A 5 year fixed may see a bigger hit on the monthly payment at the end of the 5 years. If you are on the variable rate sooner as rates rise you will have gradual increase. If you have a long fixed term you could end up with a big increase in 5 years which will hit harder.
although the 5 year fixed will probably save you more in the long run, are your finances stress tested to cope with a potential large increase in 5 years rather than a gradual increase every few months from 2 years time.
If it was to raise 0.25 every 6 months for example on a 100k mortgage, after 2 years of fixed your variable will see a £100 increase after 2 years then £25 increase every 6 months. On a 5 year you would have a £250 increase after 5 years which will be far harder to take if you get used to your fixed payments and available spending.

A bigger increase, but ultimately paying less interest in the long run.

It doesn't matter if the change is gradual or rapid, prudent financial planning suggests that anybody in a position to take out a mortgage would be wise to sense check their affordability even at 8% interest rates on their current income.

No doubt there will be collateral when rates rise as people who completely overstretched themselves and with poor financial planning will find times tough. I'd suggest anybody who secured a mortgage post MMR should be fairly comfortable?!

csgohan4

Good thing about 5 years is you get the rates during the low interest period and by 5 years, try and get close to 60% as possible to get even lower rates to compensate for the government putting up the interest rates