Remortgage 5 or 10 years fixed dilemma

HelenKa

Hi all, I wonder if you can advise on something very simple for others, but not for me?

I have bought a house for £220k, had 10% deposit. My house is currently (according to HPI) worth £240k, which means my equity (deposit) is 25%. I cannot really overpay on the mortgage and it will remain at 20 years length.


I am torn between two options, 5 or 10 years fixed.

5 years:
I can stay with my current provider Yorkshire Building Society at 1.84% with £1245 set up costs, at £897 per month (no additional costs, actually cheaper than higher % ones)

or go for 10 years:

At the rates between 2,49% and 2,69% with a variable product fee cost. Generally, monthly repayment would be around £970.

So there is a of approx 0,7% between 5 and 10 years fixed (£70 a month)

Both of them have pros and cons.

Within 5 years, I will probably hit 60% LTV and might remortgage even cheaper (currently as low as 1.71%), of course, there might be a product, legal and valuation fee. I am scared though that in 5 years I am no longer going to have that much of the equity due to the Brexit therefore might have 80 or 90% LTV.

I also think interest rates will raise to at least 2% in the next 5 years (obviously no one can really predict at present), the mortgage rates will increase anyway so I will be overpaying £70 a month for 5 years (£4200 :eek:), but later saving an unknown amount.

I will also need to change the lender as Yorkshire does not offer 10 years products (legal and valuation cost).

What do you think? Any advice will be appreciated.

dimbo61

Well 5 years is a long time and 10 years is alot longer !
What will you be doing in 5/6/7/10 years time.
If you overpay the mortgage by £70 a month for the next 5 years will you be 60%LTV ?
We had an offset mortgage with YBS for a period of time. Which was fixed for 5 years and were a little surprised when interest rates dropped to 0.5% in 2009.
If you have no plans to move in the next 10 years ? Maybe a 10year fix would be a good idea But plans change sometimes.

HelenKa

Thank you for the reply, I do not plan to move or change the job, unless obviously a tragedy happens, but then the early repayment charge would not really matter. Basically, this is the house for life, will never be able to afford anything better as we are quite old, hence 20 years repayment.

stator

If you can't afford rate rises then lock in as long as possible.
If you don't check the mortgage rates then you won't know if you made a mistake and can live in ignorant bliss, knowing you're living in a house you can afford.
If you can afford the rate rises then I'd be tempted to go for 5 and try and get the LTV down.

But my advice is probably rubbish, I don't know why I post. You almost certainly know more than me anyway

getmore4less

crunch the numbers,


How big is the mortgage?
220 @ 90% == 198
240 @ 75% == 180 (going with this)

your 5y option 20y term, payment & amount owing Y5
£181,245 @ 1.84% £903pm £141,993 (59% LTV)

no fees equivalent you need

£180,000 @ 2.00% £903pm £141,991


Picking a 10y deal, TSB 2.59% £995 fee
in Y5 and Y10
£180,995 @ 2.59% £967pm £144,117 £102,147

Paying £967 on the 5y deal to make the comparison of a 5+5

£181,245 @ 1.84% £967pm £137,973

a no fee 5y follow on to break even would be

£137,973 @ 3.671% £967pm £102,145

That gives room for some change before you are wore off on 5+5

lets say your current 5y was now 1.5% higher with same fee

£139,218 @ 3.34% £967pm £101,433 (still ahead by £700)
to break even same fee.
£139,218 @ 3.448% £967pm £102,149

HelenKa

Thank you very much getmore4less, it took me the whole day to understand what you wrote


So, to summarise, I am taking out 5 year mortgage with Yorkshire at 1,84% and will be overpaying by £70 every month. After 5 years I instead of owing £141,016, I will be owing £136.612 (plus initial fee of £1250).
If I were to go for a 10 years deal at 2.59%, I would have owed 143,319. That is quite a difference.

I still worry about the rate increase and the decrease in the house value, hopefully the difference would not be too much in a negative way. No one knows how much houses are going to fall following brexit.

John-K_3

Here!!!8217;s what I did in one ten year period...

Resigned from the civil service, moved to Geneva to do a doctorate, finished the doctorate, got married, started working for a U.K. investment bank, rose to run an options trading desk, resigned, moved to a German investment bank, got divorced, moved to New York...

Ten years later, re-married, worked for three other banks, have a child, been to New York for work again, and back again.

Ten years is a very long time.

HelenKa

HaHa, you are amazing, but I plan to stay in my current job until retirement so no plans to move in the next 20 years, I think I am too old to get divorced too It always depends on person's mobility score, our is extremely low