Fix for 2 or 5 years

SavingSteve

They cant give economic advice, but can certainly help explain the different fees and total costs involved, which in your situation is the biggest concern.

AnotherJoe

MrDerek wrote: »

AnotherJoe, from what I've seen there's no correlation between the length of a fixed term and the mortgage fee. There's also valuation fees and others to consider too, so it still makes sense to me that if the rates stay the same then it's better to fix for longer.
.

A simple thought experiment, with rates staying the same for five years.
Option 1 a 1.89 rate for 2 years followed by another 1.89 for 2 years followed by another 1.89. All five years at 1.89.

Option 2 a five year fix at 2.29 for 5 years. All five years at 2.29.

How was option 2 better ?

MrDerek

AnotherJoe wrote: »

A simple thought experiment, with rates staying the same for five years.
Option 1 a 1.89 rate for 2 years followed by another 1.89 for 2 years followed by another 1.89. All five years at 1.89.

Option 2 a five year fix at 2.29 for 5 years. All five years at 2.29.

How was option 2 better ?

Option 2 you would save on any remortgage fees and any costs to get the deal. £1000 - £2000 each time you remortgage?

SavingSteve

Exactly, which is why I said each person needs to do the maths and based on their mortgage size make the right call.

AnotherJoe

MrDerek wrote: »

Option 2 you would save on any remortgage fees and any costs to get the deal. £1000 - £2000 each time you remortgage?

Which is why I said (as did others) it depends on mortage size and the deal specifics. As someone else pointed out there isn't necessarily a match between fix length and fees, though I think in general shorter fixes do tend to have a bigger fee.

So this isn't really a question that can be answered except with specific details.

Thrugelmir

AnotherJoe wrote: »

A simple thought experiment, with rates staying the same for five years.
Option 1 a 1.89 rate for 2 years followed by another 1.89 for 2 years followed by another 1.89. All five years at 1.89.

A decision can only be based on what you know today. Hindsight is a wonderful human invention that is often used to justify a particularly decision.

Thrugelmir

anna42hmr wrote: »

I have bean reading this post with great interest as I am now in a position to consider fixing for 2 vs 5 years, have a mortgage that the initial 2 year fix is due to end ( i do not want to remortgage at this time so am looking at the banks product transfer offering. Which have no fee

In the time have had my initial fix thanks to overpayments I will be able to drop down a loan to value bracket so wil now be able to go for under 60%.

Both 2 and 5 years are cheaper than current rate ( 1.89 for 2 year and 2.29 for 5 year).

In my case am glad that I only fixed for 2 years first time round due to rates dropping further since plus also being able to drop a ltv during that time.

I am in a quandary though about wether to go for 2 or 5 this time round, but at end of the day it is all a gamble just wish I could predict the future lol! Go have 8 weeks to sit and consider what I wish to do before I can choose the next product (as want to avoid the variable rate if possible).

Once you are under 60% LTV then there's no further improvement in rates due a lower LTV.

One option is to take the 2 year fix and pay the same amount as the higher rate. Then at least the balance owing would be lower at the end of 2 years. The less you owe the lower the impact will be if interest rates were to rise.

anna42hmr

Thrugelmir wrote: »

Once you are under 60% LTV then there's no further improvement in rates due a lower LTV.

One option is to take the 2 year fix and pay the same amount as the higher rate. Then at least the balance owing would be lower at the end of 2 years. The less you owe the lower the impact will be if interest rates were to rise.

I was planning to continue over paying any way, for example at the moment I have my direct debit rounded up from 433.48 a month contracted payment to 550.00.

I intend to continue paying the 550 by increasing the overpayment amount no matter which of them I go for. The only thing concerning me which I am weighting up is if for example the house prices crash as some are claiming, then run the risk of after year 2 being at above 60 ltv again and therefore on higher rates again.

I think I may need to sit and run through figures to see how much would need to drop in value etc for that to be a possibility

For a while now have been thinking I would just fix for 5 years just to ensure lower
Rate for longer but now starting to consider more going for the lower rate 2 year option and see what happens then. Especially as doing a product transfer this time Means no fees.

Dawnr

Thank you everyone for your helpful advice.

It makes sense for us to fix for 2 years, in which time our personal and financial situation is unlikely to change much.We will consider then, fixing again at the end of the 2 years for probably 5 additional years, but it will depend on the situation at that point. We will make overpayments to increase our LTV ratio and we believe we should go down a bracket in 2 years (unless there is a property crash!). If we were to fix for 5 now, we are likely to have lower income and higher expenses as we plan to have children during that time.

The net financial costs for us between a 2 year fix and 5 year is negligible as the re mortgage fees will be similar to the total of the lower repayments over 2 years.

Thanks again.

getmore4less

As rates drop it is harder for lenders to manipulate competitive position on rate, could drive fees down.
The down side is cost recovery from the rate is harder which can push up fees.