Any downside to a 10 year fix if it's portable?

mr_fishbulb

Hi all,

I have a mortgage with Nationwide. It was fixed for 5 years in Feb 2014, so comes to an end next year. With Nationwide, I can pick a new mortgage next month and have been looking at either another 5 year fixed, or extending it to 10 years.

I don't think I will be in my current house for the next 10 years (5 years is probably more likely), but then again this mortgage is portable. I've read a few online guides about how long to fix for, and they all say don't go for a longer fix if you are planning to move because of the early repayment charges. But my Nationwide one is portable and I pay no early repayment charges if I move and stay with Nationwide.

So as far as I can see, the only downside would be if I wanted to sell my house and not buy another one?

Cheers in advance

Lotak

Biggest disadvantage is you're paying a higher rate, relative to 5 year, and you wouldn't be able to take advantage of lower rates if rates went down. Obviously the reverse (rates going up) wouldn't affect you and would be to your benefit.

You'd also pay a higher ERC if you were in that position than if you were 5 year fix.

AnotherJoe

What rate was your five year for and how much do you reckon it cost you over that time?

davidmcn

Bear in mind it's only "portable" if your next property (and you) meet your lender's criteria at the relevant time.

Thrugelmir

mr_fishbulb wrote: »

I can pick a new mortgage next month and have been looking at either another 5 year fixed, or extending it to 10 years.

What interest rates have you been offered?

Mortgage_Adviser

You can only port the mortgage if you fit the lenders criteria and affordability model at the time of the porting.
If you don't but another lender can help this means you have no other option but to pay high early repayment charges.

amnblog

As mentioned above.

The product is portable, the mortgage is not.

You need to be satisfactory for lending at the time in order to port the product and not pay the redemption fee.

mr_fishbulb

Thanks all for the replies.

So I'm currently on 2.99% (expires in Feb). The rates I've been offered are 1.94% for a 5 year and 2.69% for a 10 year. I want to stick with Nationwide as there is a trust restriction on the property, and I know Nationwide are fine with that.

Even if I go for the 10 year one, my monthly costs of the mortgage would be lower than what they are now, so I can over-pay or even keep the monthly amount the same and reduce the mortgage term to 19 years (overpaying would be the most flexible).

I don't worry about rates going down during my fixed term (even over 10 years). Although it's a complete guess, my gut tells me there will be little movement in the next 2-3 years, but probably some in the next 5 (right about when I would be coming out for my fix if I was on 5 year).

I do think about the affordability part on porting the mortgage. On the plus side, I've currently got a LTV of ~49% and I live in London. My salary has increased by about 30% since I applied for the mortgage 5 years ago. Any move I make would most likely be out of London.

If I go for the 5 year fix, then I'm going to be paying about £200 per month less than I do now.

With the 10 year, I would be paying £100 less thank I do now.

If I did take the 10 year one, and had to to pay ERC after 5 years then that's going to be ~£12,000.

So lets assume that I want to move in 5 years time (that's just a guess):

The 5 year fix will save me £12,000 over what I'm paying now, but with the risk of interest rates being higher when I need to re-mortgage.

The 10 year fix will save me £6,000 in the first 5 years, with the chance of porting it over to the new property, and keeping the interest rate for the following 5 years. If I can't port it over then the EPC will be £12,000 and I'm still at risk of interest rates being higher for the new lender willing to accept me. Plus if I don't meet the affordability requirements to port it over, I'm guessing the only lenders who will accept me, aren't going to be giving me their best rates.

Typing it all out like that makes me think that the 10 year one has actually got the biggest financial impact if something goes wrong. The 5 year one will only cause me financial impact if base rates rise more than about 0.75% in 5 years (but I would have been saving £200 per month instead of £100).

I think I'm starting to lean more towards the 5 year fix.