3 year or 5 year fix?

Jim75

Hi,

We’re in the process of buying a new house and have the option of choosing between a 3yr and 5yr fixed rate Mortgage.

The 3yr is at 2.09% and has monthly repayments of £1030 over 25 years and the 5yr is at 2.53% with repayments of £1090.

The difference in repayments is neither here nor there, but what I’m keen to get advice on is whether to go for the 3yr or the 5yr fix? We’re moving to a new area, so the 3yr is appealing so that we have flexibility if things don’t work out. But with Interest rates so low and having been low for so long, a 5yr fix is quite appealing to guard against any rate rises.

Thanks in advance

AnotherJoe

https://forums.moneysavingexpert.com/discussion/5451273

Thrugelmir

What are the follow on rates once the fixed term period has ended?

The cost of borrowing is more likely going to be influenced by wholesale market rates rather than changes to BOE base in the shorter term.

El_Torro

Can you port the 5 year to another property? That way if you do decide to move you won't be stung by the early repayment charge. Unless you sell without buying a new property of course.

getmore4less

Look at how much less you will owe after 3years paying the £1090 on both options

That will tell you what neither here nor there is really costing you.

Spangled

Jim75: "The difference in repayments is neither here nor there"

Well, it's actually £60 a month difference. That's £720 a year. So over the first three years the three-year fix is £2,160 cheaper (not taking into account any potential difference in fees or other factors).

Of course, that's just the financials. As getmore4less says, you should do a full costing for each mortgage over the three years and then work out whether paying an extra two grand in interest on the five-year fix is worth it for the further two years of rate stability and peace of mind that it gives you.

getmore4less

if fees the same
£242k paying £1090pm on both after 3 years the difference is around £3150

to break even at 5y you need a follow on 2y+ deal 3.29% or better