Mortgage Interest rate advice - FTB

Tholbear

Could someone please advise regarding the best deal in my situation.

I have an option of going for either 2yr fixed rate at 1.75 or 5yr fixed rate at 2.14 for a mortgage of 175000. Just wanted to understand which will be the better option out of the two? I understand we cannot predict the interest rate increase in future but is it better to go for 2yr now and risk the increase in interest rate or play it safe and choose 5yr fixed?

Thanks in advance

getmore4less

You don't provide enough information to quantify the options that can help you make the choice.

Add term and payments for each option

Tholbear

Term is 34 years

I don't remember the precise numbers but 2yr fixed works out to around £570pm and £615 for 5yr

getmore4less

£175k 34years going with a £605 payment(2.14%) on both in 2 and 5 years you would owe

£175,000 1.75% £605pm £166,463 £153,084
£175,000 2.14% £605pm £167,824 £156,468

at Y2 taking a new rate(over 3 years) of 2.43% will leave you with £165,468.

You have 2x0.25% rise protection built in at Y2 taking another 2y.

a drop in LTV may also give a bit more


You can do the same calc for 1,2,3 rises at Y2 and see what protection is still there at Y4

or rates don't rise and you are upto £3k behind taking the 5y now.


Don't forget to factor in the fees at this level of borrowing the fee based rates are often best.

Tholbear

Thanks for the detailed explaination. Looks like 2yr term will work out better.

dimbo61

Yes the 2 year term is cheaper but are you looking at the Big picture.
What LTV will you have in 2 years when you need to remortgage ?
Would 5 years give you security ? Maybe get the LTV down to 80/75%
Life plans and events kids, job, age, career, pensions
Is this a studio flat or 3 bed detached house ?

FTB so new to the mortgage game and owning property.

enthusiasticsaver

On first appraisal the 2 year lower fixed rate is the more attractive deal but it is not just about interest rate. Do you see yourself staying in the house for more than 2 years and should interest rates rise after 2 how difficult would you find it to cope with a higher monthly repayment?

getmore4less

if the 2y rates went up 0.5% it would still be less than the 5y fix payment