15 year fixed rate

lizzief1502

Hi
I have a few questions before we fully complete our remortgage.

We have been accepted for a 15 year fixed rate at 2.35% . Is this a good deal in the current circumstances? Or do you reckon rates will decrease further. It's just  a long time to sign up to if there's a chance rates will come down further.

Also we have 20 years left in total and during this fixed period we can overpay upto 10% would you do this monthly, yearly or save separately and pay off at end of 15 years.
Thank you for your advice

Liz 

RedFraggle

Sadly you're in crystal ball territory. It comes down to whether for you, the security of knowing what you will pay outweighs the risk of losing money. 
It's also a big commitment in terms of life circumstances changing not changing in a way that results in a move. 
It's personal preference. 

kev2009

I initially signed up to 5 year fixed when i got my mortgage and I started OP last 2 years and i chose to keep the term the same and reduce the monthly payments so i had bit more spare cash.  I've just started looking as my fixed rate ends soon and i'm going to re-fix for another 5 years.  For me, 5 years is fine i'm planning to now OP each year and reduce the term.  Don't forget circumstances could change i.e maybe yo will inherit some money or win some money and if your tied in you will have early repayment charges so if you wanted to clear it, your paying them potentially a hefty fee so I've stuck with 5 years as its long enough to be reasonably secure and know what i'm paying without worrying about interest rates going up etc and IF i should ever come into some money, it isn't too long to wait until i can switch to variable rate and then potentially clear it or pay a large amount off as i wont be in 0% limit.

Worth considering all options. At the moment, interest rates are pretty low so up to you.
Kev

RobM99

Base rate is 0.1% currently; I can't see that going down!   2.35% is pretty good (in my opinion). I remember when it was 15% - around 1985 I think.

Socajam

Personally,  I would take the 2.35% fixed for 5 years and use the overpayment and buy some Premium Bonds.
The money is the Premium Bonds would be by Emergency Fund/Life Happens Fund money.
When the 5 year fix ends, I would then use that money to overpay before starting another fix.
Right now with the corona virus, none of us know wat the post corona virus will be, but It's not going to be easy because all the money that Government have had to spend will have to be repaid - by higher taxes etc.
If we think that Government will not increase taxes etc, same goes for local authorities cutback and increase council taxes etc, then we are in for a rude awakening and it won't be pretty - hard times are coming and those with cash will be able to weather the storm.
If you think 5 years is to short, then go for 10 years.
RobM99  -  I lived through the 15% interest rate and it was doom and gloom for years.  If we were to return to those days, all that will happen is a lot of repossessed properties/bankruptcies because people are and have been living above their means for too long - the chickens are waiting to come home to roost.

getmore4less

With a 20 year term and 10% over payments you are going to finish the mortgage in <15years.
£523/£100k over 20years  £660 to pay off in 15

There are 10y rates around 2%  which would leave you £3k ahead after 10y and need a payment around £920/£100k to finish in 10Y

You don't mention LTV but if decent and rates around 1.5% or less on shorter term  if you paid at the same rate as the 15Y+overpayments you would build in some security against rises

Crunch some numbers using what you can pay to see what the 15year fix could cost you if rates don't move and what rates you could take without being worse off if you took a lower rate early on

Petriix

The 15 year fix would protect you against potential disaster scenarios (such as job loss, negative equity etc.) which could force you on to a higher rate if you no longer meet affordability criteria at the end of your fixed period; as well as protecting against general rate increases.

It's all very well continually renewing on 1 and 2 year deals at low rates while prices are rising and jobs are secure. But, it's a gamble that those low rates will continue to be available and that you will remain eligible. With a 15 year fix, you would know exactly how much you will be paying and could budget accordingly. You might pay more in total, but you'd be mitigating against the risk of serious financial difficulties.

Regarding overpayments: it's best to overpay as soon as possible by as much as possible provided that you are absolutely certain that you won't need that money back and couldn't earn more by investing it somewhere else. It may be better to pay into a regular saver account each month and then pay off a chunk of the mortgage at the end of the year.

Remember that any overpayment will save you the compound interest over the entire remainder of the mortgage. If the 10% overpayment allowance is based on the original loan amount then it allows you to pay the whole mortgage off in under 10 years anyway, regardless of how long the original term was. Building up an overpayment reserve may (check your specific product t&c) allow you to take future payment holidays without penalty if required in an emergency.

blue_max_3

Personally, I'd get the cheapest rate you could find and overpay the maximum. Two years often makes any fee too significant, but five years is the sweet spot. In five years, you will be in a very much better position than the majority of borrowers, so I can't see it all melting down by then.

getmore4less

Lets do some number to see what this long term fix security is costing.
Simple scenario, rates do nothing for 15 years
£100k 15y 2.35% £660pm
5y rates around 1.5%(no fees) with the same payment that's the mortgage paid off a year early  saving £8,250
If you can find 1.4% that's another £800 saved 1.3% and nearly £10k saved.

Lets go with a 5 years at 1.3% after 5 years your 15y fix still has £70,660 the 5 year £65,820
You need a rate better than 3.79% to be no worse off after the next 10 years, that's 2.49% rise on current 5y fixes.
its costing upto  £10k to protect against 10x0.25% rises in 5 years against further 5y fixes or 6 rises against moving to a 10y fix after 5.

Lets say we get 5 rises so the next 5y fix is 2.8% and see where we are at 10y
the 15y fix has £37,600 left the 2x5y fixes(1 at 1.3% and another at 2.8%) £33,250 you need rate for those last 5 years 7.1% or less to be no worse off.

Lower rates and overpaying in those early years(just to the level of the 15y rate) gives massive safety margins against rate rises.

That is based on £100k same rates for any size mortgage just the payment scales from £660pm

[Deleted User]

Depends if you are going to want to move in the next 15 years ? Dont assume you will be able to port your mortgage to a new place. Lender could be tricky with affordability or type of property etc so you are stuck paying a redemption penalty.  There is a post on here from someone in that situation. 

15 years is a long time