Take Mortgage at 1.4% Fixed Interest Rate for 2 Years or 1.7% Fixed for 5 Years?

mikeprice

A friend of mine has been offered a mortgage by Halifax with two fixed term options:

1.4% Fixed for 2 Years

1.7% Fixed for 5 Years

The decision depends on how much mortgage borrowing interest rates might increase by.

Which option would you say is best?

Thank you.

LaHostessAvecLaMostess

If interest rates stay the same or go above 1.7% in the next 5 years, the 2 years one. If they go above 1.7%, the 5 year one.

Thrugelmir

How much is the peace of mind worth?  0.3% is a small differential to pay. Against the possibility that rates might increase sharply. For context BOE would regard a normal base rate as being in the range 3.5% - 4.5%.  We are currently still in an abnormal period. 

pjcox2005

I would say if you can get a large chunk of a mortgage paid off whilst interest is below 2% then you've done very well. We fixed for 5 years last time and probably lost out slightly but peace of mind and again 10 years now around 2% is more than you would have ever anticipated.

superbigal

No brainer the 5 year fix.  As rates certainly can only going one way.   

Bob~24601

I guess it depends on what you think will happen in the next few years. 

Not just with interest rates, but moving home or wanting to pay a big chunk of it off in the next 2 years. 

I would have normally gone with the 5 year for just piece of mind, but as I'm nearer paying off my mortgage and want to make several lump payments towards my mortgage over the next couple of years, I would go for the 2 year one. 

phillw

mikeprice said:

Which option would you say is best?

I'll let you know in 5 years...

When I took out my mortgage, it was usual for people to take out the cheapest 2 year deal and then take another cheapest 2 year deal. However my two year deal ended in 2008 & that strategy would appear to not have paid off.

However I was able to then get a lifetime tracker at 0.4 above base, although it had a collar & so it was great but not amazing.

If I'd originally taken out a 5 year tracker then I'd have paid more and not been able to get a 2.something% interest rate for the next ten years. By the time there were better fees, I'd practically paid the mortgage off & so the fees outweighed any saving.

In hindsight I could have invested the money rather than overpaying, but I liked certainty.