2 yr fix or 5 yr fix

robatwork

sevenhills wrote: »

Surely if rates will be stable 'for 2 years or more' a two year fix is pointless.

The rates currently for discounts pretty much match 2 year fixes for 0 fee products. So yes they are unlikely to go up much, but almost certainly won't be going lower, and fairly likely to go up a bit.

So a fix has some validity.

sevenhills

hughjonesd wrote: »

That is interesting. Could you explain your reasoning?

Perhaps its classed as gambling, since no one can predict what the rates will be in 3/4 years times?

getmore4less

sevenhills wrote: »

Surely if rates will be stable 'for 2 years or more' a two year fix is pointless.

not for someone that is on 90%/95% LTV and can get down to 80%/85% then knock 1% off their rate in 2 years,

Fixing for longer at higher rate would be rather silly.

if there is a better rate than the 2y fix then that would be an option

startingout2016

Fixed for 2 years back in Jan because of the exact same reasons listed above.

serko

I Don't Think you can class a ten year fix as gambling if anything shorter fixes are gambling. With a ten year fix you have certainty and should be able to afford it for at least that length of time. Yes you are paying a premium for certainty, but it's more of a gamble IMO to take a two year fix and risk having to renew at a higher price than current ten year fixes if interest rates go up.

The risk with a ten year fix is to the downside which is limited. If interest rates stay where they are for ten years you lose out by roughly one percentage point. With a two year fix the risk is to the upside, which theoretically is unlimited, but is IMO over the 10 year period I'd likely to be over 1%.

I could off course be wrong, but I won't lose sleep paying one percent two much as I know it's affordable. I'd worry more if I was on a two year fix and rates started to rise.

Anyway everyone has their own opinion and only time will tell.

getmore4less

serko wrote: »

I Don't Think you can class a ten year fix as gambling if anything shorter fixes are gambling. With a ten year fix you have certainty and should be able to afford it for at least that length of time. Yes you are paying a premium for certainty, but it's more of a gamble IMO to take a two year fix and risk having to renew at a higher price than current ten year fixes if interest rates go up.

The risk with a ten year fix is to the downside which is limited. If interest rates stay where they are for ten years you lose out by roughly one percentage point. With a two year fix the risk is to the upside, which theoretically is unlimited, but is IMO over the 10 year period I'd likely to be over 1%.

I could off course be wrong, but I won't lose sleep paying one percent two much as I know it's affordable. I'd worry more if I was on a two year fix and rates started to rise.

Anyway everyone has their own opinion and only time will tell.

The 2 year fix only has to stay low for 2 year and then you take the 10 year fix.

what you are gambling with a 10 year fix is not that rates might change over 10 year but they will go up over 2 years.

phillw

getmore4less wrote: »

The 2 year fix only has to stay low for 2 year and then you take the 10 year fix.

what you are gambling with a 10 year fix is not that rates might change over 10 year but they will go up over 2 years.

You're gambling on what the market will think in 2019 about the interest rate for 2019-2029, compared to what the market things in 2017 about the interest rate for 2017-2027. There may not even be 10 year fixes in 2 years time, we may not even have a functioning society.

Taking any mortgage is a gamble. But we're at very low rates historically, so fixing for a long time is a gamble with reasonable odds. If you're fixing for 10 years then you should read the T&C very carefully.

sevenhills

phillw wrote: »

You're gambling on what the market will think in 2019 about the interest rate for 2019-2029, compared to what the market things in 2017 about the interest rate for 2017-2027. There may not even be 10 year fixes in 2 years time, we may not even have a functioning society.

In 2007 no one would have predicted that by 2009 interest rates would be almost zero, a change of around 4%

amnblog

For every borrower that selects a rate term based on what they expect will cost less overall, there is another who is making a decision based on their feelings regarding risk.

We sometimes have clients who want to know where they are for as long as possible and are focusing on long term stability. For these clients current ten year fixes are attractive. They need to remember however that a lot can happen over ten years and early redemption penalties can be painful.

phillw

sevenhills wrote: »

In 2007 no one would have predicted that by 2009 interest rates would be almost zero, a change of around 4%

Word on the street at the end of 2007 was that bank of england were going to make multiple cuts in 2008. Which is why I got a nationwide life time tracker rather than fixing, it saved me a fortune.

I admit a 4% drop wasn't predicted, it was looking more around the 2% mark. It can't feasibly go much lower, so it's either stay the same or go up.