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2Yr fixed Vs 5yr fixed
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bmouthboyo
Posts: 94 Forumite


Hi Guys and Girls,
Please forgive me if this is a silly question. My wife and I are first time buyers and despite all the reading about a few bits still seem a little confusing about mortgages.
I guess my first question relates to the initial deals mortgages seem to offer.
I cannot understand why some people may go for 2 years fixed at 1.28% than 5 years at 2.13%. Is it simply to reduce monthly outgoings by 73 pounds? Surely having to pay another load of arrangement fees etc after 2 years offsets this monthly saving?
I can see the 5 year fixed jumps to a much higher % than the 2 years fixed, but people simply go for a new mortgage with another introductory deal don't they? Or am I missing something here?
Sorry again if this sounds silly, I am just trying to get my head around what is the best option for my wife and I given the vast amount of variables.
Thanks
Please forgive me if this is a silly question. My wife and I are first time buyers and despite all the reading about a few bits still seem a little confusing about mortgages.
I guess my first question relates to the initial deals mortgages seem to offer.
I cannot understand why some people may go for 2 years fixed at 1.28% than 5 years at 2.13%. Is it simply to reduce monthly outgoings by 73 pounds? Surely having to pay another load of arrangement fees etc after 2 years offsets this monthly saving?
I can see the 5 year fixed jumps to a much higher % than the 2 years fixed, but people simply go for a new mortgage with another introductory deal don't they? Or am I missing something here?
Sorry again if this sounds silly, I am just trying to get my head around what is the best option for my wife and I given the vast amount of variables.
Thanks
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Comments
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It doesn't sound silly, but it does depend on individual circumstances. Ignoring expectations of interest rate changes there are a number of reasons the 2 year 1.28% could be better for someone than a 5 year 2.13% including:
- if the mortgage is large, then the saving in interest could more than offset fees of the remortgage in two years
- if the capital repayments over two years reduce the LTV through a significant barrier (or the house goes up in value), then the remortgage deal in 2 years could be a significantly better deal
- if someone thinks they may move within 5 years, then they may not want to be lumbered with early repayment charge potential for 5 years.0 -
whatarethescores that is perfect, thank you.
I always assumed you could carry your mortgage with you to a new home, but I assume if you have made money on the home then you will want a freshly calculated mortgage with the new interest rate on the LTV.
Do most people kind of ignore the SVR% as they would go for a new deal anyway?0 -
As a first time buyer it is more relevant to think about how long it is sensible for you to be tied in to a product.
Do you want to be committed to a product for five years when you may wish to move within that time. Also within 5 years your property value may increase and your lending reduces which decreases your loan to value. This may make your 5 year rate uncompetitive.I am a Mortgage Broker
You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0 -
bmouthboyo wrote: »Hi Guys and Girls,
Please forgive me if this is a silly question. My wife and I are first time buyers and despite all the reading about a few bits still seem a little confusing about mortgages.
I guess my first question relates to the initial deals mortgages seem to offer.
I cannot understand why some people may go for 2 years fixed at 1.28% than 5 years at 2.13%. Is it simply to reduce monthly outgoings by 73 pounds? Why would you want to pay an extra 1% in interest every year for five years? Or maybe you'd prefer to overpay by £73 a month instead of spaffing it away on mortgage interest
Surely having to pay another load of arrangement fees etc after 2 years offsets this monthly saving? That would depend what they were. My daughter is currently doing this, no arrangement fee with one lender, £1,000 with different one (but lower rate), they come to the same costa nd she's saved teh extra interest she would have been paying (she took out a 2 year as opposed to a 5 year, nearly 2 years ago. Rates have come down as well so its a double benefit for her.
I can see the 5 year fixed jumps to a much higher % than the 2 years fixed, but people simply go for a new mortgage with another introductory deal don't they? Or am I missing something here? Yes and no, in that order.
Sorry again if this sounds silly, I am just trying to get my head around what is the best option for my wife and I given the vast amount of variables.
Thanks
Other questions.
Why would you want to lock yourselves into paying an extra 1% for 5 years? Thats a lot of money. It might even bring the LTV down to a level where's there's a virtuous circle of an even lower interest rate available when you renew.
Why would you want to lock yourself into a deal for 5 years, if you decide to move after 3 years for example, you most likely will have a Early Repayment Charge of several thousand pounds to make?
Now, there are reasonable answers to the above questions, they depend on your circumstances and so that determines whats best for you.bmouthboyo wrote: »whatarethescores that is perfect, thank you.
I always assumed you could carry your mortgage with you to a new home, WRONG !!! (in most cases) but I assume if you have made money on the home then you will want a freshly calculated mortgage with the new interest rate on the LTV. You'll probably have to get a new one anyway.
Do most people kind of ignore the SVR% as they would go for a new deal anyway? Yep.0 -
This is a lot clearer now, thank everyone. I guess for me as I don't have a any past experience with mortgage rates etc the idea of knowing what you need to afford for the next 5 years is reassuring especially when interest rates can only really go up from here.
That said I imagine we will be selling the property around the 2 year mark after adding some value to it so the shorter length deals would be best for us. Our LTV ratio should be 70% when we buy so not sure when the next significant step down would be.
Do most people who wish to sell their property aim to sell it at the end of a mortgage introductory deal? Do they live with the SVR for a while until it's sold and they will not have to pay any fee's for leaving the deal early?0 -
Borrowers tend to time their move for when the current mortgage rate ends.I am a Mortgage Broker
You should note that this site doesn't check my status as a Mortgage Broker, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.0 -
bmouthboyo wrote: »This is a lot clearer now, thank everyone. I guess for me as I don't have a any past experience with mortgage rates etc the idea of knowing what you need to afford for the next 5 years is reassuring especially when interest rates can only really go up from here.
That said I imagine we will be selling the property around the 2 year mark after adding some value to it so the shorter length deals would be best for us. Our LTV ratio should be 70% when we buy so not sure when the next significant step down would be.
Do most people who wish to sell their property aim to sell it at the end of a mortgage introductory deal? Do they live with the SVR for a while until it's sold and they will not have to pay any fee's for leaving the deal early?
It would vary depending upon their circumstances and how much planning they did and if life sent them any curved balls in the meantime.
That is what most people were saying two years ago when my daughter, on the advice of me and her broker (who it has to be said is a somewhat unusual dont go with the flow sort of a guy, outstanding broker), said go for a two year deal and she did.
And FWIW before that people were saying rates could only go one way and that was up.
Here's a "guru" from 2008 saying rates would be 8% by 2010. I think my mortgage rate then was around 1.5% and then it dropped to 1.25% Good thing I didnt listen to the "expert" then and go for say a ten year fix at 6% or so !
Interest rates 'may hit 8pc' in two years
Interest rates may rise to 8pc within two years to choke off soaring inflation, according to radical new research.
By Philip Aldrick
Published: 10:09PM BST 21 Aug 2010
Policy Exchange research concludes the Bank of England will be forced to raise interest rates to cope with inflation.
Andrew Lilico, chief economist at the influential Policy Exchange think tank, has warned of an interest rate environment not seen since the 1990s.0 -
Another failed prediction here, barely 6 months ago;
https://www.theguardian.com/business/2016/apr/15/george-osborne-says-brexit-will-drive-up-interest-rates
Although I suppose he will be able to say he was right when/if they ever do rise...
fcFeb 2008, 20year lifetime tracker with "Sproggit and Sylvester"... 0.14% + base for 2 years, then 0.99% + base for life of mortgage...base was 5.5% in 2008...but not for long. Credit to my mortgage broker0 -
bmouthboyo wrote: »Our LTV ratio should be 70% when we buy so not sure when the next significant step down would be
You're quite close, the next one is usually 65%0
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