5 year or 10 year fixed mortgage?

johnnytee

Hi,

First-time buyer, new to all this! But thinking of fixing the interest rate on my mortgage because I fear they will go up in the future, if they don't stay where they are. It seems logical to fix for 10 years for peace of mind, rather than fixing for 5 and then finding the interest rates at that point are much higher. But I have been advised against this as I was told it may cause problems in the future if I want to move house and I don't understand why. They said to go for a 5-year one instead. Do you have any thoughts on potential pitfalls of a 10-year fix, as opposed to a 5-year one? Any help really appreciated! Many thanks in advance.

daveyjp

No single answer, you need to read the terms and conditions for any mortgages you are interested in.

Look out for restrictions on overpayments, early repayment charges, redemption fees, tie ins or restrictions after the fixed period etc etc

grumiofoundation

What are the interest rates?
What is your LTV?

Worth considering that over say 5 years you will pay off a chunk of equity, unless you have a big deposit now you will move to a cheaper LTV band. 

If you plan to move within the next 10 years taking out a 10 year mortgage could mean you get hit with early repayment charges (ERCs) if you pay it off before the end of the (10 year) fixed term. 

davilown

Perhaps best to ask this on the Mortgage forums

steampowered

Remember that if interest rates are higher, that will mean inflation is higher.

If inflation is higher, that will mean that the value of your mortgage debt is being inflated away, it will also mean your salary increases. You suddenly find your property is worth a lot more and you are on a LTV. 

Personally I wouldn't go more than 5 years, unless you are pretty sure that this is your forever home and you are not going to be moving for the next 10 years.

Greymug

steampowered said:

Remember that if interest rates are higher, that will mean inflation is higher.

If inflation is higher, that will mean that the value of your mortgage debt is being inflated away, it will also mean your salary increases. You suddenly find your property is worth a lot more and you are on a LTV. 

Personally I wouldn't go more than 5 years, unless you are pretty sure that this is your forever home and you are not going to be moving for the next 10 years.

Very good points here

MrsBrush

The other thing to consider is whether the mortgage can be ported - which means that you take the product and interest rate with you to another property. Some mortgage companies have products that allow this, and a portable mortgage will future proof you to an extent regardless of whether you choose 5 or 10 years, because as long as the new property is acceptable to the lender (subject to valuation and surveys), you meet the affordability and the lending criteria at the point of your move you wont pay the early repayment charge. 

Would recommend using an experienced whole of market mortgage broker who is best placed to advise on your specific circumstances.

sevenhills

steampowered said:

Remember that if interest rates are higher, that will mean inflation is higher.

Personally I wouldn't go more than 5 years, unless you are pretty sure that this is your forever home and you are not going to be moving for the next 10 years.

I got a 10 year fixed mortgage 4 years ago, the main point is that I am 59 and not expecting to move house, if I do there will be financial penalties for changing the mortgage.

No one can predict interest rates 2+ years in advance, so it's a gamble for stability.

I pay 2.69% at least 1% higher for stability

lookstraightahead

I've just taken out a 5 year fixed. You could always try to save what you would pay monthly on a 10 year fixed which could be a bit of a buffer after 5 years.

10 years is a long time, can you really plan that far ahead 😊

stueyhants

If it’s a small ish mortgage you need to factor in the fees. Going for 2x5 year mortgages might be more expensive when factoring the fees now charged vs a slightly higher IR with a 10 vs 5 year mortgage. 

I can’t see IR going that high in the future, the government has baked in low interest rates for ever given the accumulation of debt both privately and governmentally.

saajan_12

Remember that the 5y and 10y fix rates price in the expected rates over the next 5 / 10 years.. that means rates traders who look at the history, govt policy, supply & demand etc etc all day long have accounted for the probability that rates will go up / down over what time horizon. That doesn't mean they'll be right, but its unlikely you or I know better. 

There are other factors though 
* If you move during the fixed term, you'd have to port the mortgage and ensure you pick a property which your lender wants to lend on (some are fussy). If not, you're liable for ERC penalties, generally higher if you have longer left. 
* If you have extra cash and want to overpay, may have ERCs on anything above 10% typically, generally if you have longer left
* If your property appreciates or your capital repayments pay off a good chunk of the mortgage, then you can get a lower LTV deal upon remortgage in 5 yrs.. on a 10yr, you're stuck on the higher LTV deal for the full time. 

*On the other hand, if there's a significant risk your earnings dip etc and you don't pass affordability in 5yrs, then 10y might be better