Tell me if I was being silly......fixed rate...should I change from 10yr to 5 yr before completion?

Seeker89

Hello everyone,
I am a first time buyer who has been agonising over how Brexit is going to impact interest rates. It is quite and unsettling time to be a first time buyer!

I have just received a mortgage offer from Nationwide. Before my appointment with their advisor, I had looked up their mortgage rates online and spotted that they offer 10 year fixed mortgage. The deal is 30 years, 10 year fixed at £553, 2.79% - plan is to overpay within limits over this time span. I took this deal as I felt it gave the most security.

But now I am wondering if I should have asked for a 5 year deal....1.94%, £494/month. I've worked out that if I overpay £1000 a month on top of £500 so £1500 then I could get it down to 54,000 in just five years time. This would mean that even if interest rates go up to 10% that I would be paying less than the £553 on the 10 year deal.

I feel that I have been silly going for the 10 years, I didn't have much time to think about the decision as life has been hectic!

Is it easy to change the deal with Nationwide. No contracts or exchange has taken place with the house yet, still in the early days.

Thank you for your time and advice .

ACG

There are not many 10 year fixed rates available and as you can see the difference in rates is not insignificant. From a financial point of view, it is difficult to say for sure but it sounds like you have done some sums and it maybe doesnt stack up doing the 10 year fix. 

The other thing to consider is what are your plans long term? Do you intend on staying in the same place for 5-10 years? What happens if you have a family etc or you do not have a family... I do not know your circumstances but on a 10 year deal, if they change and you want to move, you are basically stuck with nationwide as your lender unless you are happy to pay the ERCs to get out of the deal. 

Chumy

Go for the 5%. Saves money in the long run with your over payment plans! All the best

amnblog

@acg Quite apart from your valid point of a First Time Buyer making a 10 year decision.
Why would a first time buyer be allowed to lock into an 85% LTV rate for ten years?
Seems bonkers to me.

MovingForwards

amnblog said:

@acg Quite apart from your valid point of a First Time Buyer making a 10 year decision.
Why would a first time buyer be allowed to lock into an 85% LTV rate for ten years?
Seems bonkers to me.

Depends on what the ERCs are, whether they are on a sliding scale or fixed throughout. So, potentially it could make sense to OP.

I've fixed mine on a 5 year deal (adverse lender), sliding ERCs and will look to remortgage within the 5 years as the ERCs are not too bad.

Retired_Mortgage_Adviser

amnblog said:

@acg Quite apart from your valid point of a First Time Buyer making a 10 year decision.
Why would a first time buyer be allowed to lock into an 85% LTV rate for ten years?
Seems bonkers to me.

Exactly this. Especially when the client can overpay by £1000/month (on top of a mortgage payment of £550/month)!

The broker needs a good spanking

Andysandy

30 year mortgage, 2.79%, 553/month 

Looks like a 135k loan size, and at 85% LTV, approx 160k house price.

If you took out a 2 year fix, overpaid by 1k/month, your LTV could be down to sub 70% at the end of year 2 unlocking significantly lower mortgage rates.

Did your broker not even talk you through other options/scenarios at all?

Of course if you are fully convinced that interest rates WILL rise significantly over the coming years, then what I've said above can be safely ignored.