5 year vs 10 year mortgage - thoughts?

dellboy102

Hi All

We have a purchase of a house going thru and we were offered a rate of 2.28% for both a 5 year fix or a 10 year fix, we are planning to stay in the house for at least 10 years so we went for a 10 year fix in the heat of the moment, we are still planning to live there that long however we are not having second thoughts on whether we should have gone for a 5 year fix.

I realise no one really knows which way rates will go, but is there a general concensus on whether rates may be even lower after 5 years?

The other option available at the moment is a 2.58% option for 5 years.

Starting to think maybe we've locked in for too long but going round in circles..

Advice appreciated

zzzt

I think the way of looking at it is do you want security? With the 10 year mortgage you are guaranteed the same repayments for 10 years. Considering inflation devaluing the currency, potential house price increases, and increase to mortgage rates, having that kind of stability can be really good for your peace of mind and ability to manage your finances. It's likely, although not certain, to put you in a better financial position in the future.

But you have to balance this with the prospect of interest rates falling. How would you feel if that were to happen? Personally I think if I know I can afford to pay a certain rate and that rate was fairly low, then I wouldn't be that bothered if interest rates did drop further.

I did do a fix about 5 years ago and interest rates did drop further, but my rate wasn't very high and it didn't bother me at all. I value stability, and I prefer to save money by making overpayments than by getting a new lower rate every few years.

There is one other factor, which is the possibility of your LTV coming down significantly, especially if you overpay. This may put you into another bracket or two down and make lower rates available to you, but if you are locked in for 10 years, you couldn't remortgage without paying early repayment fees.

bargainhunter888

my remortgage rate is 2.88% with halifax for 5 years, i wish they were a bit more competitive