5 or 2 year fixed rate?

NQManchester

Getting_greyer said:

If it was me. I'd look at what ltv I'd be at in 2 years if I made no overpayments. I'd also look at how this would be altered if the house value increased a bit, decreased a bit and stayed the same.  This would give me an idea if I'd get a cheaper rate after two years on 85% ltv.  That said, an 85% rate in 2years may cost the same, less or more than a 90% today so essentially guessing game.  What price for peace of mind for 5 years though eh.

I didn’t really factor this in when I did a five year fix the first time and it was worth me paying the 3k early repayment charge to remortgage after two years. I was wary and assumed rates could only go up (since gone down even more). 

I still did another 5 year fix last spring when there was talk of 20% price drops because I was worried about having to remortgage in the middle of a price crash.
So basically I think it comes down to your own attitude to risk and whether you can be bothered with having to remortgage in just two years time with all the admin/fees. 
One thing to note if the house does go up in price you can normally use additional borrowing to get more money from the mortgage rather than having to completely remortgage If you want to do renovations. I’ve borrowed extra after 10 months because our house has gone up so much already. It’s basically a small additional mortgage added alongside your original one. 

RS2OOO

T1T2T3T4 said:

RS2OOO said:

Don't forget to factor in any arrangement / setup fees which may make the 5 year more attractive than the initial rates imply.

They both have a £999 fee.

Effectively making the 2 year option £25 per month more expensive (excluding interest charges) if you were to divide the fee by the number of months each deal lasts for.

T1T2T3T4

NQManchester said:

Getting_greyer said:

If it was me. I'd look at what ltv I'd be at in 2 years if I made no overpayments. I'd also look at how this would be altered if the house value increased a bit, decreased a bit and stayed the same.  This would give me an idea if I'd get a cheaper rate after two years on 85% ltv.  That said, an 85% rate in 2years may cost the same, less or more than a 90% today so essentially guessing game.  What price for peace of mind for 5 years though eh.

I didn’t really factor this in when I did a five year fix the first time and it was worth me paying the 3k early repayment charge to remortgage after two years. I was wary and assumed rates could only go up (since gone down even more). 

I still did another 5 year fix last spring when there was talk of 20% price drops because I was worried about having to remortgage in the middle of a price crash.
So basically I think it comes down to your own attitude to risk and whether you can be bothered with having to remortgage in just two years time with all the admin/fees. 
One thing to note if the house does go up in price you can normally use additional borrowing to get more money from the mortgage rather than having to completely remortgage If you want to do renovations. I’ve borrowed extra after 10 months because our house has gone up so much already. It’s basically a small additional mortgage added alongside your original one. 

So if the house goes up in price we can borrow more against it? That would be helpful to do the renovation work. 

T1T2T3T4

RS2OOO said:

T1T2T3T4 said:

RS2OOO said:

Don't forget to factor in any arrangement / setup fees which may make the 5 year more attractive than the initial rates imply.

They both have a £999 fee.

Effectively making the 2 year option £25 per month more expensive (excluding interest charges) if you were to divide the fee by the number of months each deal lasts for.

Does that take into consideration the fact that the 5 year would be £150 more per month?

zagubov

Just finished a five year fix, which was very helpful. Only three years left on the mortgage so settling for a two year fix (our lender doesn't do three but if they did, we'd bite their hand off).
With current price rises for everything we all need as much certainty we can get.

RS2OOO

T1T2T3T4 said:

RS2OOO said:

T1T2T3T4 said:

RS2OOO said:

Don't forget to factor in any arrangement / setup fees which may make the 5 year more attractive than the initial rates imply.

They both have a £999 fee.

Effectively making the 2 year option £25 per month more expensive (excluding interest charges) if you were to divide the fee by the number of months each deal lasts for.

Does that take into consideration the fact that the 5 year would be £150 more per month?

No, it doesn't, but effectively its now only  circa £125 per month more expensive accounting for the arrangement fee being spread over that longer term.

Not a huge difference, just another consideration.

Everyone's circumstances are different obviously, but personally I'd choose the 5 year option on the basis interest rates will almost certainly be higher than they are now within 2 years and your LTV unlikely to have have improved enough to make you eligible for significantly better rates within 2 years.

But saying that, I remember being chuffed at managing to secure a rate below 7% in my early mortgage days and constantly amazed at the low rates available in recent years.

london21

I opted for 2 years fixed because if change in my circumstances and would hate to pay ERC also hoping for a better LTV due to home improvements I am doing. But if you do not need to release equity and want certainty 5 years might be better. 

NQManchester

T1T2T3T4 said:

NQManchester said:

Getting_greyer said:

If it was me. I'd look at what ltv I'd be at in 2 years if I made no overpayments. I'd also look at how this would be altered if the house value increased a bit, decreased a bit and stayed the same.  This would give me an idea if I'd get a cheaper rate after two years on 85% ltv.  That said, an 85% rate in 2years may cost the same, less or more than a 90% today so essentially guessing game.  What price for peace of mind for 5 years though eh.

I didn’t really factor this in when I did a five year fix the first time and it was worth me paying the 3k early repayment charge to remortgage after two years. I was wary and assumed rates could only go up (since gone down even more). 

I still did another 5 year fix last spring when there was talk of 20% price drops because I was worried about having to remortgage in the middle of a price crash.
So basically I think it comes down to your own attitude to risk and whether you can be bothered with having to remortgage in just two years time with all the admin/fees. 
One thing to note if the house does go up in price you can normally use additional borrowing to get more money from the mortgage rather than having to completely remortgage If you want to do renovations. I’ve borrowed extra after 10 months because our house has gone up so much already. It’s basically a small additional mortgage added alongside your original one. 

So if the house goes up in price we can borrow more against it? That would be helpful to do the renovation work. 

Yes so your total would still need to be less than their maximum lending amount based on affordability etc so wouldn’t work if you’re already borrowing your max (unless you get a payrise etc) 
You then basically get offered the additional borrowing at the rates at that time still based on the ltv. So our house went up £50k and we borrowed £20k but could have borrowed £40k at 80% and you can pick how many years you want it over like a normal mortgage. 

I don’t think all banks offer this though so you’d need to double check, ours was with hsbc. 

And you’d also obviously need prices to go up which isn’t guaranteed.

T1T2T3T4

NQManchester said:

T1T2T3T4 said:

NQManchester said:

Getting_greyer said:

If it was me. I'd look at what ltv I'd be at in 2 years if I made no overpayments. I'd also look at how this would be altered if the house value increased a bit, decreased a bit and stayed the same.  This would give me an idea if I'd get a cheaper rate after two years on 85% ltv.  That said, an 85% rate in 2years may cost the same, less or more than a 90% today so essentially guessing game.  What price for peace of mind for 5 years though eh.

I didn’t really factor this in when I did a five year fix the first time and it was worth me paying the 3k early repayment charge to remortgage after two years. I was wary and assumed rates could only go up (since gone down even more). 

I still did another 5 year fix last spring when there was talk of 20% price drops because I was worried about having to remortgage in the middle of a price crash.
So basically I think it comes down to your own attitude to risk and whether you can be bothered with having to remortgage in just two years time with all the admin/fees. 
One thing to note if the house does go up in price you can normally use additional borrowing to get more money from the mortgage rather than having to completely remortgage If you want to do renovations. I’ve borrowed extra after 10 months because our house has gone up so much already. It’s basically a small additional mortgage added alongside your original one. 

So if the house goes up in price we can borrow more against it? That would be helpful to do the renovation work. 

Yes so your total would still need to be less than their maximum lending amount based on affordability etc so wouldn’t work if you’re already borrowing your max (unless you get a payrise etc) 
You then basically get offered the additional borrowing at the rates at that time still based on the ltv. So our house went up £50k and we borrowed £20k but could have borrowed £40k at 80% and you can pick how many years you want it over like a normal mortgage. 

I don’t think all banks offer this though so you’d need to double check, ours was with hsbc. 

And you’d also obviously need prices to go up which isn’t guaranteed.

Thanks for explaining

T1T2T3T4

london21 said:

I opted for 2 years fixed because if change in my circumstances and would hate to pay ERC also hoping for a better LTV due to home improvements I am doing. But if you do not need to release equity and want certainty 5 years might be better. 

Are you planning big house improvements? We want to start updating things too but don't know how much we would get done in two years