Remortgage: 2 year vs 5 year

sevenhills

maninahat wrote: »

I've seen some 10 year fix options about, but I'm wary of locking myself in for that long, considering the possibilities of changes in personal circumstances etc, and the rates aren't terribly good.

Unless you are a man for figures, it is difficult to understand which will work out cheaper, but these are uncertain times. The lenders will always make their cut. I rented privately for 10+ years, prior to getting a council house, I didnt think I would be doing that for 10 years.

sevenhills

AnotherJoe wrote: »

And the lesson out of that was, you can't fix currencies by raising interest rates. eg the exact opposite of what you are now saying they might do again, raise rates. They would LOWER them if they wanted to have a "difference of opinion" .

Higher or lower, the rates in the USA are going upwards, we might go that way too, at least that is what Robert Peston said. But then again, Trump seems to be doing the opposite of what he promised.

sevenhills

Rates on two, five and 10-year fixed deals have fallen following a surge in late 2015, when Mark Carney, Governor of the Bank of England, made comments suggesting that a rate rise was imminent.
Now, they appear poised to head back up again.
Its only an opinion in a newspaper, that I thought you and others might like a read.


http://www.telegraph.co.uk/personal-banking/mortgages/best-fixed-rate-mortgages-two-three-five-and-10-years/

getmore4less

Over nine years now since a rate rise,

The rates can only go evangelists will be right one day.

fewcloudy

maninahat wrote: »

That pretty much describes me to a tee when it comes to financial matters. I do understand that a 2 or 3 year fixed rate would work out cheaper than a 5 year deal, and something like a variable or tracker possibly cheaper still, but for me, its a bet I'm not sure I want to make, as I personally believe that the financial and economic situation is going to change within the next two years, and I'd rather know that my mortgage payments aren't going to be shooting up after two years.

And that is why many people buy a fixed rate product (me included in the past). It's fair enough and understandable if a rate rise could make things uncomfortable, or even cause disaster if one cannot afford the consequences. When I look back over my various mortgages, none of the fixed rate periods saved me money, but that wasn't really the point as you have explained; it was for a bit of certainty re. my monthly outgoings. As a first time buyer it can be more of a struggle; you can overextend things a bit to get the house in the first place, you're getting used to the real costs of owning your own home, you might be lower down the career ladder, etc. Later on you hopefully require a much lower LTV and maybe have a bit more leeway.


All that said, these are very different times than through the 90's or whenever. Rates so low for so long, and all are aware of the consequences to millions of homeowners of a sudden rate rise. No-one can say if or when it will happen. I have managed to convince myself that when they do rise, it will be very small rise and slowly. Giving me time to deal with it.


About 9 years ago I very nearly fixed and it was going to be for 3 or 5 years. Rates were 5%, fixes higher than that. Instead I got a tracker and after about a year, rates nosedived. They might just as likely have gone through the roof, how would I know?
And since then, so many times I've read that rates can only go one way now. No they can't. They can also go down or they can stay the same.


You do what's right for your own peace of mind.


fc

getmore4less

Fixes only help a bit unless your income improves you get some cash or can get better rates any rises will get you all the fix does is delay the inevitable.

A lower rate with overpayment will reduce you debt.

For many at high LTV there is not a big difference between fixing and alternatives anyway but a reduction in LTV asap brings the rate down significantly. This can make a short term fix with an aggressive overpayment strategy well worth the effort.

AnotherJoe

fewcloudy wrote: »

I have managed to convince myself that when they do rise, it will be very small rise and slowly. Giving me time to deal with it.

You might not believe him, but that's what the BoE governor publicly stated about a year ago in a speech and thats before Brexit made it even less likely that rates would rise.

sevenhills

AnotherJoe wrote: »

You might not believe him, but that's what the BoE governor publicly stated about a year ago in a speech and thats before Brexit made it even less likely that rates would rise.

http://www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/

Looking at the graph in the link, I would say average rates were around 4/5%
No one can predict what interest rates will be in 2+ years time; but if you can get less than the average fixed for 10 years, then that sounds good to me.
I like a gamble, I also like to know that my payments will not double.

AnotherJoe

sevenhills wrote: »

http://www.economicshelp.org/blog/1485/interest-rates/historical-real-interest-rate/

Looking at the graph in the link, I would say average rates were around 4/5%
No one can predict what interest rates will be in 2+ years time; but if you can get less than the average fixed for 10 years, then that sounds good to me.
I like a gamble, I also like to know that my payments will not double.

We are in different economic times now. And rates over the past hundred years arent indicative of rates for the next 100.

sevenhills wrote: »

I like a gamble, I also like to know that my payments will not double.

Then why did you post here to ask?

Of course, all you'll know is that your payments wont double for 5 years. And that some of that doubling will be negated by lower rates for the first two years letting you overpay.

If you took a 2 year now a very possible scenario is that if it looked like rates were starting to rise by the end of that, you could take a 10 year fix, whereas having taken a 5 year now, you'll have to wait an extra 3 years, by which time rate will (in this scenario) have risen even more and so overall, your payments in a severely rising scenario will be more by taking the 5 year fix.



Good luck

maninahat

Well I've crunched the numbers on a few of the options open to me, and the results are quite interesting (to me anyway!).

These are all HSBC with a 66% LTV (there's no rate drop until 60% LTV and I don't have the spare cash to get that low) and no product fee (the Product fee mortgages don't save enough over the term of the deal to cover the fee)

2 year fixed: 1.64%
3 year fixed: 1.89%
5 year fixed: 2.09%

Now, having taken on some of the advice here, I looked at either the 5 year fix (my preferred option) and either a 2yr +3yr fix or 2yr+2yr+2yr (with the last year's costs halved to compare directly with a five year fix) and the results were as follows:

3yr+2yr fix: £720 cheaper over five years than the five year fix
2+2+2yr fix: £1080 cheaper over five years than a five year fix

So, the 2/3 versus 5 year fix question is basically a question of "will I be able to get this good a rate in 2/3 years time?" and is it worth spending £700 to make sure I do.

I personally don't think that rates will fall over the next 5 years, but do think that with the uncertainty of a massive change the UK's international relationships in about two years time I'd rather stick with the pretty reasonable 2.09% rate a 5 year fix would give me. If nothing changes, I'll have lost about £1000. If rates continue to fall I will of course lose more, however if they go up I will benefit, and personally I believe that the third outcome is most likely, followed by the second.