Mortgage Dilemma - 2 Year / 5 Year Fixed

gazza85

Have just had an offer accepted on a property and getting around to all the 'Fun' bits..

I do have a dilemma as im not sure whats best in terms of a fixed term, I would either go for a 2 year fixed with a smaller deposit now and then Re-Mortgage after the 2 years with 15%+ in equity or put 15% deposit down now and fix for a longer term of 5 years. The latter would use up most of my savings (along with legal fees, Moving etc) where as the 2 year would allow me the extra cash as a buffer and to build up the equity over the 2 years. As I'm a first time buyer I'm not sure how difficult / costly it would be to re-mortgage. Do people re-mortgaging get offered higher rates than first time buyers?

Options:

2 year fixed rate - £25,000 (£26,000 with Product Fee) deposit (12%)  Payments £635/mth with no product fees or £600/mth - with a £999 product fee added to the loan,

5 year fixed rate -  £31,500 deposit  (15%) = Payments £605/mth no product fees (Wouldnt be able to afford the £999 product fee, so would be added to the loan)

Any thoughts / Advice would be greatly apprieciated, Thank you.

Marvel1

I'm no expert, this is just me and what I would do:

2 year fixed with no fee (extra £35 x 24) = £840 
No fee is cheaper

5 year fixed is extra £5 from 2 year fixed with fee a month (5 x 60) = £300

My option would be 5 year fixed with no fee.

Mutton_Geoff

How old are you? What are your career prospects like? Are you buying with anyone else? Is it your first purchase? How big is the place?

Five years is a long time (it's also a great song by David Bowie). I would weigh up all the other personal factors first, not just the £ signs. Carefully consider all the what if's, like being offered a job abroad in 18 months etc. Much of the decision depends on your own life and the risks you're willing to take.

Sachs

FTBs are often at that time of their life where things can change quite drastically. Perhaps most notably, partnering up and or/getting married and/or having to move for work. What would be the early redemption penalty on the 5 year fixed if your personal circumstances changed in such a way that you had to sell your house before the end of the 5 year period and were unable to port?

If its say 1% per year remaining on a £150k mortgage and you had to break it in year 3 you would pay an early redemption cost of about £2.5k. That may or may not happen but you have to weigh it against the definite £300 a year more expensive the 2 year is.

gazza85

I am 34 as while private renting it was difficult to save for the deposit.. finally got there!

I would be buying with my girlfriend, and have two children approaching secondary school age.

The location of the house was selected with future proofing in mind, walking distance from current and future schools, 5 mins drive for my girlfriend to work & walking distance from train station for me to get to work..

The main aim was to get to 15% + before commiting to a longer term, doing that straight away would stretch me in the short term but would then avoid remortgaging after 2 years.. where as a 2 year fix would be easier financially in the short term, but I wasn't sure how much of a pain / extra cost it would be remortgaging etc.

Sachs

Its a judgement call then based on risk, like insurance and other things. Is £600 extra cost over two years worth the piece of mind you'll get from having more in savings to fall back on if things go wrong in life?

Remortgaging itself isn't really a pain these days, maybe 2 hours of your time on a Saturday afternoon.

Mutton_Geoff

Sachs said:

Remortgaging itself isn't really a pain these days, maybe 2 hours of your time on a Saturday afternoon.

True. I have been getting two year fixes for at least 12 years now and moved/bought/sold 3 times in that period. It’s no problem at all, especially if you retain the same broker.

steampowered

You seem to be conflating two separate decisions:
1) Whether to fix for 2 years or 5 years
2) Whether to take out a mortgage on a 90% or 85% LTV

Can't you take out a 5 year fix with a £25k deposit? This should be possible. That's probably what I'd do.

Personally I would prefer a 5 year fix if I was pretty sure that I'd want to stay in the property for at least 5 years. You might as well take advantage of record low interest rates by locking it in, and avoid the fees associated with remortgaging. I would take out a 2 year fix if I thought there is a chance I might want to move in a few years time.