WWYD - 3yr vs 5 yr fix

NewShadow

Greetings all, 

Opinions sought - If you were me... what would you do/what process would you follow to decide the best option for you?

FTB, borrowing £97,500 over 20 years - Repayments for both options are comfortable and I'd be intending to overpay as and when anyway. 

I've got a mortgage offer for the three year fix, but my broker has said it's quick and easy to switch products and there's plenty of time given my solicitor is still waiting for searches to come back. 

Broker advises three years because I'm a FTB and might decide I'd made a horrible mistake - well, he didn't phrase it quite like that  - personally, I have no concerns about staying in the property long term. 

Is it as simple as if I think the economy is going to have picked up in 34 months?

Thrugelmir

Whatever rate you are most comfortable with. Fixed outgoings for 5 years provides peace of mind. No one can predict the future direction of mortgage interest rates, 

NewShadow

Thrugelmir said:

Whatever rate you are most comfortable with. Fixed outgoings for 5 years provides peace of mind. No one can predict the future direction of mortgage interest rates, 

So... you'd toss a coin? 

Thrugelmir

Over the years, personally I opted for 5 year rates. Nothing worse than an unplanned increase in outgoings. 

MovingForwards

1.76% for 5 years

I'm a FTB, I've opted for a 5 year fixed rate, looked at how much ERCs are over the 5 years, and will factor them in when I look to remortgage (difference is I'm with an adverse lender and didn't want the hassle of finding another lender after 2 years, this way I have the option of looking each year or sitting tight).

If I was on a normal rate, I would have looked to do the same, gives the flexibility of saving up / replenishing savings, doing any decoration, buying bits etc.

fewcloudy

Hi NewShadow
Depends on many factors, and is probably why your broker suggested 3 years.
For some people, during the 5 yr period they might move into a different (lower) LTV band. That might mean lower rates are then out there, but unavailable to them because they are tied into a 5 yr fix.
That said, all rates are historically very low, both of your options are low rates, and your signature indicates you have a 25% deposit, therefore maybe not much to be gained even when your LTV eventually changes.

I personally think it's a bit more than a coin toss though. It's number crunching (accounting for any fees and ERCs), being aware of the Total cost not just Monthly cost, and IMO reading the financial press/financial web sites regularly, and eventually having the courage of your own convictions to make a well informed choice.

NewShadow

Thanks all. 

Trouble is... going into this I wanted a long fix. 

Inherently and intrinsically, I value certainty/stability and see this represented by as long a fixed mortgage term as possible. 

... and yet - I also value expertise and I'm paying someone to make a recommendation - they've recommended 3 years...

The actual monetary difference is only around £10 per month. 

Borrowing £97,500 plus £999 of fees for 20 years: 
- 1.44% fixed until 03/23, APRC 3.6%, ONE payment of £592 then £472 until end of fix
- 1.76% fixed until 06/25, APRC 3.33%, One payment of £tbc, then £482 until end of fix

It feels like it should be a no-brainer... and yet... 

amnblog

This is not about the maths. It is about what makes you feel comfortable.

getmore4less

Don't get fooled by the long fix is the low risk option.
it just has different risks. 
One is you are committed to a higher payment for 5 years. 

Cscott139

Have you looked at fee free deals? I generally find it rare that paying for the lower interest rates works out good value on mortgages of that size. You will have a slightly higher rate but you also wont be adding £999 to your initial balance.

D.L

I went with Coventry last year who had the cheapest ERC-free products at the time. You pay a slightly higher rate but I value having both the long fix and flexibility if needed. The rate was only 0.2% higher so was an easy choice for me.