Remortgage - help! 2y, 3y or 5y fix, offset or not?

blueskyscenario

Hi,
Am in the middle of remortgaging my property and I just can't decide what option to go for.
Have the option of a 2y fixed offset (1.45%), 5y fixed offset (1.89%), 2y fixed no offset for 1.35% or 3y fixed no offset for 1.55%. All options incur a fee of £1k. Current outstanding balance is £390k (LTV .40%) and aim is to pay this down further to reduce debt over time. Have about £100k that I need to keep in cash over next 2y or so, so was thinking offset would be a better option?
Have always gone for floating/variable rate mortgages, but fixed rates are now cheaper than floating. My dilemma is that 5y feels like a long time to fix (don't have plans to move, but who knows what can happen in 5y; this mortgage wouldn't be particularly portable as LTV requirement is 50% max) but 2y feels too short particularly considering the cost of remortgaging each time? Also could have changes in work circumstances in the short to medium-term which means reduced household income in 2y time when it comes time to remortgage - not sure if this will make it difficult to find another deal. A 3y fix would perhaps be a good halfway house solution - but there is no offset option for this..!
What would you do? Am I correct in thinking that unless fixed rates go to 2% by 2021, I will be worse off with the 1.89% 5y fix vs the 1.45% 2y fix?
Any views/advice greatly appreciated! Thank you.

dimbo61

Your comparing apples and pears if you look at 2 and 5 year fixed rate deals.
Now I love offset mortgages having had 2 already and taking another soon.
You have £100K in cash but don't want to pay it off the mortgage now ?
Will you be moving in the next 5 years ?
Rates have never been this low and the longer deal gives you long term security no matter what happens at work.
So you must already be earning enough to cover a £390,000 mortgage or more as this is a remortgage deal so higher rate tax payer.
£100K is a serious emergency pot or New car, business money, school /university fees.
I think a offset mortgage might suit you BUT when talking about this size of loan why not use a mortgage broker to find the very best deal for you.
Best money you could spend

getmore4less

Why do people always miss important information.

This time it is the full term/payments planned.

A number crunch will remove some guessing.

getmore4less

picking up on a couple of points.

but 2y feels too short particularly considering the cost of remortgaging each time?

That depends on the rates and payment.
A simple test is the difference in rate and the fee regularity for an interest only mortgage.

For your mortgage of £390k with £100k offset for each 0.1% difference in rate is £290 a year.

The difference between the 2y and the 5 year if rates did not change is 0.44%=£1276py for a £500py fee.
(real payment and cashflow timing change the numbers making the saving smaller but it won't be as low as £500py the 2year is clearly a better deal IF rates don't go up.

Am I correct in thinking that unless fixed rates go to 2% by 2021, I will be worse off with the 1.89% 5y fix vs the 1.45% 2y fix?

A relatively simple calculation using Y2 and Y4 with 1k extra fees on 2 2y fixes against 4 years of the 5y fix.

Again the actual payment is critical
5y fix after 2y and 4y.
£290k 1.89% £525pm £288,332 £286,600
£290k 1.89% £1000pm £276,723 £262,935
£290k 1.89% £1500pm £264,503 £238,025


2y fix same payment after 2 years

£290k 1.45% £525 £285,751
£290k 1.45% £1000 £274,192
£290k 1.45% £1500 £262,023

Add the 1k and do another 2years same payment but different rate to hit the same as the 5y fix at Y4
£286,751 2.17% £525 £286,592
£275,192 2.18% £1000 £262,936
£263,023 2.19% £1500 £238,023

By going with the 2y you have around 2x0.25% rises built in safety in and close to the 3rd in the first 2 years over a 4 year period.

muhandis

In your place I would get in touch with a broker (plenty who don't charge a fee, just look on the MSE mortgages page) so you can get be sure that you're getting the "best deal" for your circumstances.

blueskyscenario wrote: »

Hi,
Am in the middle of remortgaging my property and I just can't decide what option to go for.
Any views/advice greatly appreciated! Thank you.

blueskyscenario

getmore4less wrote: »

Why do people always miss important information.

This time it is the full term/payments planned.

A number crunch will remove some guessing.

Sorry, I thought I had included all info but clearly I didn't. The term is 23 years, which means mortgage payment of around £1,700 a month. In an ideal world I would like to overpay on top of this by around £600-1k a month, but it will depend on how job circumstances go..worst case scenario £1,700 will be a stretch but just about do-able.

blueskyscenario

muhandis wrote: »

In your place I would get in touch with a broker (plenty who don't charge a fee, just look on the MSE mortgages page) so you can get be sure that you're getting the "best deal" for your circumstances.

Thanks, I've got in touch with three, the first broker said 5y rates are excellent and I should fix because rates are at historically lows and I'll have peace of mind. The second broker said 2y makes much more sense because rates aren't going anywhere for a long time due to Brexit, Fed cutting etc and I would only lose out if there is a sudden and rapid rise in interest rates ahead which is unlikely. Also that 5y is a long time to be fixing and you never know what can happen, and then I should only choose a 5y if I am 100% certain I won't move house in the next 5y (which I am not). The third broker said offsets are not an attractive option as the banks charge a higher rate. So I am very confused indeed!

haras_nosirrah

I think this is the risk of too many cooks spoiling the broth - by consulting 3 different brokers you have now got in a muddle.

Best thing to do is to choose which broker you feel you meshed best with. Ask them what their opinion is and why. You can disagree with their opinion but come to a decision together

blueskyscenario

getmore4less wrote: »

picking up on a couple of points.



That depends on the rates and payment.
A simple test is the difference in rate and the fee regularity for an interest only mortgage.

For your mortgage of £390k with £100k offset for each 0.1% difference in rate is £290 a year.

The difference between the 2y and the 5 year if rates did not change is 0.44%=£1276py for a £500py fee.
(real payment and cashflow timing change the numbers making the saving smaller but it won't be as low as £500py the 2year is clearly a better deal IF rates don't go up.

A relatively simple calculation using Y2 and Y4 with 1k extra fees on 2 2y fixes against 4 years of the 5y fix.

By going with the 2y you have around 2x0.25% rises built in safety in and close to the 3rd in the first 2 years over a 4 year period.

Thanks so much for this, I wish I could crunch the numbers the way you do - I get confused on how to work out the break evens.

The offset works by reducing the mortgage term rather than the monthly payment if that makes sense. So I'd still be paying £1,700 / month, but just paying down more capital. Does this make any difference to your calcs?

Am I correct in concluding from your numbers that a 50bps rate rise over 2y is the break even between the 2y and 5y deal, AFTER fees? Sorry for probably dumb questions! Thank you

blueskyscenario

dimbo61 wrote: »

Your comparing apples and pears if you look at 2 and 5 year fixed rate deals.
Now I love offset mortgages having had 2 already and taking another soon.
You have £100K in cash but don't want to pay it off the mortgage now ?
Will you be moving in the next 5 years ?
Rates have never been this low and the longer deal gives you long term security no matter what happens at work.
So you must already be earning enough to cover a £390,000 mortgage or more as this is a remortgage deal so higher rate tax payer.
£100K is a serious emergency pot or New car, business money, school /university fees.
I think a offset mortgage might suit you BUT when talking about this size of loan why not use a mortgage broker to find the very best deal for you.
Best money you could spend

You are right, the £100k is a combination of most of the things you mentioned...emergency money, business money, school fees. Because I need the liquidity, I can't stick it into stocks and shares..
What do you like about offset mortgages?
It sounds like people who go for the longer fixes are basically doing it for the certainty, accepting that it is a worse deal? Whereas people who go for the shorter fix are going for the lowest rate? Is that what you meant by comparing apples and pears?

Thrugelmir

blueskyscenario wrote: »

Thanks, I've got in touch with three, the first broker said 5y rates are excellent and I should fix because rates are at historically lows and I'll have peace of mind. The second broker said 2y makes much more sense because rates aren't going anywhere for a long time due to Brexit, Fed cutting etc and I would only lose out if there is a sudden and rapid rise in interest rates ahead which is unlikely. Also that 5y is a long time to be fixing and you never know what can happen, and then I should only choose a 5y if I am 100% certain I won't move house in the next 5y (which I am not). The third broker said offsets are not an attractive option as the banks charge a higher rate. So I am very confused indeed!

All very valid points.

Which product would give you peace of mind. I'd consider the additional premium on the 5 year product to be insurance. Rates cannot drop much lower. However they could rise considerably higher.

The BOE's mortgage support schemes are coming to a close. Which means that lenders will have to resort to retail and wholesale markets to fund their mortgage books in the years ahead. BOE base could remain low, however actual lending rates could drift higher. With lenders needing to make a reasonable gross margin on their activity.