5 year fix or 2 year fix with slightly better rate?

Fuzion

Please excuse me asking this question which I'm sure has been asked a gazillion times!

I've been offered 3.3% on a 5 year fixed deal (80k mortgage on an 90K house). I've got a mortgage AIP based on that deal. But 2 year fixed deals come in in the 2.3% range for me. Would that be better?

The monthly repayments are affordable in either case. I like the idea of no surprise rate hikes for a 5 year period. But I don't want to waste money that could go towards overpayment. I'm a fairly risk averse FTB.

glosoli

Do you see any changes in your circumstances between 2-5 years?

Are you wanting certainty for the longer term, or would you rather take a gamble in two years?

Do you have any plans to move home? Do you have any plans to pay off all or some of the mortgage in the foreseeable future?

Fuzion

Thanks, no change in circumstances; hopefully slightly improving income. Prefer certainty. Want to stay put for at least 5 years, will try to overpay by around £150 month in most months hopefully. Property vaue is 89K, LTV 90%.

getmore4less

Don't be fooled by "fixes are for the risk adverse" you just change the risks

try to understand what the risks are in cash terms by various rate changes.

do the numbers 1% is quite a big difference in rate to start.

£80k LTV 89% say 25years

1. 3.3% £392pm

2y £75,739 ( new LTV 84.2 )
5y £68,797

2. 2.3% paying £392pm

2y £74,144 (new LTV 82.4%)

rate over the next 3y to get to same owing as on the 5y fix.

4.08%

by taking the 5y fix you think one risk is that the rates are going to be at least 1.75% higher in 2 year than now.
(adjusted for fees but on £80k no fee deals are probably best anyway)

might be more as your LTV in 2 years will be better unless you also believe there is a price crash coming.

say you can get a no fee rate of around 3.3% in 2 years still 1% more than now at year 5 you would owe around £67,036.

that means a slightly less pessimistic view on rates 1% up not 1.75% could save you around £1800 and you still have room for the rates to go higher before being worse off.

if you could pay £480pm to get under 80% LTV in 2 years you could be looking at even better rates.

AnotherJoe

When you said "slightly' more I was envisaging soemthing like 2.3% or 2.5%, not 2.3% or nearly half as much again!

And as shown by getmoreforless, unless rates rise very high very fast, 2 year followed by 3 year works out cheaper than 5 year. Look at it as heads you win, tails you dont lose. Of course once in a while the coin may land on its edge, but unless you are desperate for the certainty of knowing your payments, seems to be a no brainer to go for the 2 year.

There are other issues with longer fixes as well, such as the high ERC should circumstances change and you need to get rid of this mortgage.

Fuzion

Thanks. I've had one mortgage broker (L&C) mention the possibility of getting a better rate on a better LTV in 2 years time. The mortgage broker at Rightmove didn't query my preference for a 5 year deal even when pressed for his opinion. Perhaps I'll speak to L&C again later today.

I have an TSB AIP on the 3.3% deal. Needed to get a quick AIP done to 'qualify my offer' when putting an offer on a house last week, which was via Rightmove. I didn't qualify for a mortgage via The Halifax, which was the initial choice. Rightmove's mortgage adviser suggests progressing with TSB as we know I qualify.

AnotherJoe

Fuzion wrote: »

Thanks. I've had one mortgage broker (L&C) mention the possibility of getting a better rate on a better LTV in 2 years time. The mortgage broker at Rightmove didn't query my preference for a 5 year deal even when pressed for his opinion. Perhaps I'll speak to L&C again later today.
.

Understandable, it's not their responsibility to be forecasting interest rates and advising you on the basis of that, because if they did then they are liable if things dont work out, whatever caveats they add, whereas you have no clue who I am so if I am wrong, tough luck I won't be making up the difference. .

getmore4less

Those rates don't match anything on the TSB site.

what rates and fees are being recommended?

getmore4less

What total payment are you targeting with the overpayment?

if you can reach 80% LTV in 2 years that opens up more lower rate options.

Fuzion

My bad, More4Less, I got the figures wrong when I posted last night; it was 3.34% - here's what the broker said:

The Nottingham have a 5 year fixed rate of 2.99% which borrowing £80,100 over 29 years would cost £344 per month while the TSB 5 year rate is 3.34% and would cost £359 per month. If you wish for me to apply for an approval with the Nottingham then i would be pleased to do this, however, should they decline our request as the Halifax did previously then you run the risk of losing the approval we have obtained with the TSB. Please let me know how you wish to proceed.

I have seen lower rates of around 2.29%, but it could be that the broker is aware that I'm unlikely to pass affordability/eligibility.

Downward

I have just had this dilemma too - My rate ends 31st Dec 16. I was all for 5 years but doing the sums I've gone for 2.
Plus with the lower payments if you can make over payments then hopefully your LTV in 2 years will drop you into the lower bracket for a better % rate.

2.3% is good for an 88% LTV btw.