What fixed rate term to go for?

halfajack

My remortgage is overdue and now looking into new deals. Given low rates just now, is it sensible to fix a slightly higher rate for longer? Just looking at options with my own bank, I can get a 2 yr fix at 1.12% or a 5 yr fix at 1.34%. Given my lack of understanding of how interest rates might be affected in the next few years, I would appreciate people more savvy than me giving me their opinion whether there's any chance I'd be kicking myself over the next 5 years if I fixed for that long. Can interest rates get much lower? And could they feasibly increase drastically enough 2 years from now to justify the increased security with slightly increased rate? I know there's no definitive right answer here but I'd appreciate thoughts. 

dimbo61

Wow a 5 year fix for 1.34% is very cheap and gives you long term security.
Are you considering moving in next 2/3/4 years ?
Are you happy with your home ?
No fees with either deal ?

jamielutz1987

Santander?

Assuming you are taking total cost into account, personally I'd pick the 5 year fix if I was reasonably sure that I wouldn't need to sell or raise-capital within the next 5 years. 

I might well be wrong but I don't think there's much scope for low LTV mortgages to go down much further and 1.34% is a really good rate assuming it is indeed cheapest for the amount I need to borrow on a total cost basis.

getmore4less

It is not just the rate you have to factor in fees against mortgage size and payment/full term.

halfajack

Thanks for helpful answers so far! @dimbo61 asked about potential moving and also fees. The moving part is where I'm unsure. We've been talking about maybe moving to a house with a garden for years but want to stay in this area and are happy to wait it out as we like our flat. So, the answer is maybe not but if the right house comes up then that could be out of the window. Is that  big issue? Can the mortgage not be ported with an application to borrow more? The fees are the same for both deals. I've taken a snapshot of them so you can see everything is the same except interest rate and length of fixed term, as well as ERC. 

@jamielutz1987 yes it's Santander. I should stress this is just the one example I've picked and only because there was a nice sequential comparison on the web page. I Have contacted L&C to give me some quotations. You also raise the issue of potentially moving within the 5 years and I wonder what the main problem with that would be - is it enough to put me off taking a longer fix just in case? 

@getmore4less thank you and I know I have to factor in more than that. My question was really about the variability of interest rates and how much that may or may not change over the next few years to help inform my decision about how long to fix for. The fees for both options are the same and everything else is the same for both deals except interest rate and early repayment charge. 

RelievedSheff

If you have no intention of moving then I would say pick the 5 year options for long term peace of mind.

Moving isn't necessarily a problem within the 5 years it is just you may be hit with early repayment charges should the mortage not be portable to the net property.

halfajack

@RelievedSheff thanks. I will now be sure to look into ERCs and portability! I had assumed any mortgage would be portable so this is exactly the kind of tip I was hoping for. 

jamielutz1987

halfajack said:

@jamielutz1987 yes it's Santander. I should stress this is just the one example I've picked and only because there was a nice sequential comparison on the web page. I Have contacted L&C to give me some quotations. You also raise the issue of potentially moving within the 5 years and I wonder what the main problem with that would be - is it enough to put me off taking a longer fix just in case?

@halfajack The main problems would be what Relievedsheff alluded to above re ERCs (usually on a sliding scale - 5% in year 1, 4% in year 2 and so on) and portability.

While portability sounds nice in theory, how it is applied differs from lender to lender and isn't guaranteed to be applicable to your new scenario. Often people porting end up with 2 parts to their mortgage, paying ERC if reducing mortgage size, restrictions as to new LTV, inability to release equity while moving, etc.

onlyfoolsandparking

Why not go for the 3 year 'remortgage special' deal, 1.60% NO FEES and this gives you flexibility for any potential move, this is another maximum LTV of 60% as well.   

getmore4less

how big is your mortgage (and full term)
you need to compare against the no/lower fee options.

Given the rates and payments that looks like £92k over 16 years
equivalent no fee rate you need to be lower than the following to be better of not paying the fee
2y 2.2%
5y 1.73%

halfajack

@onlyfoolsandparking Yes, that does seem a good compromise given the no fees! 
@getmore4less you're almost right - at about 88k over 15 years. Thank you for the tips on 2y and 5y interest rates I should be aiming to beat. Again - exactly the kind of help I had hoped for. 

As I said, I'll be getting quotations from L&C and the Santander one was just an easy one to illustrate my query with. All the replies here have given me a better understanding about what I need to look out for in those quotations. Thanks all!