10 year fix or 5?

emming

Hi Everyone, 

My mortgage is split into two parts and the first part (£148k @ 2.3%) ends in July '23 and the other (£70k @ 2.5%) ends in Feb '24. The mortgage is for 25 years, but I make overpayments every month (under the 10% allowance) so I anticipate ending the mortgage earlier than the 25 years. I don't anticipate moving in the next 10 years and I'd like to challenge myself to clear as much off the mortgage as I can. 

I have been offered a 10 year fix at 3.98% or a 5 year fix at 3.88% by my current provider, with no fees added - what would you do? The fix applies to the first part, I'll need to re-fix the second part closer to the date. My research on MSE shows that this is a decent offer. 

I know the decision is based on attitude to risk - am I prepared to pay an extra c£100 a month over what I'm paying currently for 10 years (time value of money shows that £100 will feel less painful in a few years time), or do I fix it for 5 years in the 'hope' the rate may drop. What would you do? 

There's a chance, if the rates drop by February that the second part could be fixed at a lower rate, bringing down the overall rate being paid on the full amount. Or it could go higher of course!

I keep reminding myself that based on history anything under 5% is a good deal. My parents would have loved to have been paying less than 5% when they had a mortgage!

Interested to hear your thoughts, thank you. 

Postik

I was in the same boat as you - it wasn't much more for a 10 year fix versus 5 year.  I was very, very tempted by the 10 year but in the end I went with 5 years because:

Historically I have paid off large chunks of mortgage every 5 years.  I didn't want to pay hundreds or even thousands in early repayment charges if I was tied in for 10 years.

I look back 10 years and despite how quickly the time goes, realise it's a hell of a long time.

My goal is to halve my mortgage balance in 5 years, so even if rates double in that time I wouldn't be paying any more than now.  I hope to have it all paid off in 10 years.

emming

@Postik Thank you, I appreciate your insight, food for thought. 

El_Torro

I don’t think I would take either. If I was remortgaging today (still got 2 years to go) I would go for a 2 year fix. I think mortgage rates are going to be a lot lower from next year. 

Just my opinion of course, the further out we look the more uncertain it gets.

dunstonh

fixed rates are all about certainty.   Do you want certainty over 5 years or 10 years?

Postik

El_Torro said:

I don’t think I would take either. If I was remortgaging today (still got 2 years to go) I would go for a 2 year fix. I think mortgage rates are going to be a lot lower from next year. 

Just my opinion of course, the further out we look the more uncertain it gets.

I think it's going to take a heck of a lot longer than 2 years to get out of the mess we're in.  Of course, it's all speculation one way or another though.  2 years doesn't seem long enough to me, I always find it a hassle applying for mortgages and don't wish to repeat the process in anything less than 5 years.

emming

@dunstonh I'd like certainty over 20 years, but that's not an option in the UK unfortunately. My friend in the Netherlands has a 20 year fix on under 1%. That would have been nice :-) 

MFWannabe

Out of curiosity is there a 2 year option? 

If I was choosing between the 5 and 10 year I would choose the 5 in the hope that rates will be lower in 5 years time; I wouldn’t want to be locked into a 10 year deal 

billy2shots

Not sure if it's still availabilie but 4 years ago I took out a 10 year fix with unlimited  overpayments.

The option to pay back as much as I wanted was the deal breaker going for 10 years instead of 5. 

It is with First Direct. 


Oh how they laughed 4 years ago, locking in a massive 2.4%  Looks like a good decision  now. 




Edit. FD still doing 10 year fix with unlimited overpayments. Rate is higher than you have been offered 4.19% no fees.
Still might be worth considering 

alanyau88

I would snap the 5 year fix at 3.88% which is cheaper than the 10 year fix.  You have more flexibility with the 5 year, manage your funds better and probably pay more off after the 5 years is up for a lower LTV rate.  Put the extra savings into an Isa and pay 10% extra into the mortgage every year for example.  10 years of your life is a long time and you don't know if you get a promotion or more money coming in, or if you have other plans with the equity in the house in 4-5 years time.  If rates drop lower which they are predicted to do, then you would be locked in and paying higher monthly payments, and you would be kicking yourself.  Overall, it's up to your personality and how diligent you are with your money.

RelievedSheff

We have a few years to go on our current fixed rate yet. Our remaining term at the end of this fix will be 10 years. 

We have already said if we can get a 10 year fix at under 4% then we will fix it for the remaining term. We won't have a huge balance left so minor changes in interest rates won't make much difference.