2yr vs 5yr fix at current rates?

littleteapot

michaels said:

littleteapot said:

As others have said, the market is too unstable and unpredictable to make any sensible predictions now. So take whatever length fix you can afford and meets your cost/risk balance. For example if rates are 2% higher in five years time will you afford the repayments? If the answer is no, then better go for the 10 year fix. Conversely if you expect your income to increase significantly over the next 2 years then take a chance on a 2 year fix in case rates do come down.

In my case, in 2019 I was paying 1.85% on a tracker. I was planning to start a family and my existing lender had a 10 year fix at 2.6%. I switched to that for the certainty of not having any large increase in payments which I knew I wouldn't be able to afford. Some people at the time said I was mad, but things have gone exactly the way I suspected and so am protected against that. We will need an extra bedroom in the next 8 years or so, but that is just going to go on hold as I overpay a little on the current mortgage each year and get the capital as low as possible ready to move to a bigger house when this 'low rate fix' ends in 2029.

Wouldn't you be better of saving the overpayments as this gives you more flexibility of an accessible 'line of credit' plus currently you can earn much more interest on the money (6%+) than you will save off mortgage interest at 2.6%.

Yes and that is what I have been doing for the last 12 months or so. I was just keeping the story simple to understand. Obviously if savings interest rates go back to or below 2.6% before the end of the fixed term or when we have to remortgage to move, whichever comes first, I will return to overpayment and dump my savings into the mortgage as quickly as I can within the terms.

ElwoodBlues

michaels said:

littleteapot said:

As others have said, the market is too unstable and unpredictable to make any sensible predictions now. So take whatever length fix you can afford and meets your cost/risk balance. For example if rates are 2% higher in five years time will you afford the repayments? If the answer is no, then better go for the 10 year fix. Conversely if you expect your income to increase significantly over the next 2 years then take a chance on a 2 year fix in case rates do come down.

In my case, in 2019 I was paying 1.85% on a tracker. I was planning to start a family and my existing lender had a 10 year fix at 2.6%. I switched to that for the certainty of not having any large increase in payments which I knew I wouldn't be able to afford. Some people at the time said I was mad, but things have gone exactly the way I suspected and so am protected against that. We will need an extra bedroom in the next 8 years or so, but that is just going to go on hold as I overpay a little on the current mortgage each year and get the capital as low as possible ready to move to a bigger house when this 'low rate fix' ends in 2029.

Wouldn't you be better of saving the overpayments as this gives you more flexibility of an accessible 'line of credit' plus currently you can earn much more interest on the money (6%+) than you will save off mortgage interest at 2.6%.

This is what I've been doing the last 9 months, since savings rates overtook my current fixed rate (2.5%). We need an extra bedroom, and that's partly what I was saving up for as well as banking the lack of overpayments. I'm about 1/3rd of the way to saving for the extension (40k of 120k ish), having previously been thinking I'd borrow another 80k on my mortgage to fund the rest. That would double the size of the loan, which would have been fine until interest rates shot up. Don't get me wrong, I can comfortably afford the monthly repayments, just a bit of a shock at how much money the bank will be making out of me very month for the next 25 years!

So I think I'm going to throw most of my savings at overpaying the mortgage for now, and then reassess in a couple of years, when hopefully rates are back near 4% (maybe even lower when the effects of the current rate hikes hit and the wheels have fallen off the UK economy...)  

ElwoodBlues

Apparently swap rates dropped back a bit yesterday. Is that an indicator that mortgage rates are about peaking, or do swap rates tend to flutter about all the time and yesterday just a bit of noise?

lmitchell

I think the realisation that the country cannot sustain these rates (re. national debt) for too long means there is likely to be a new ceiling for the bank's terminal rate.

5y swaps down to almost 4.9%, which were almost at 5.3% just a week ago.

michaels

I think the US inflation coming in at 3% has impacted govt debt globally

FashionHeart

nic_c said:

I took 5 years at just under 4% (locking in early). Not sure I would do more than 2 at current rates. It looks like rates will not come down as quick as previously thought, but do you think they'll be at current or higher in 18m-2y?

I did the same thing; I don't see things decreasing back to normality after 2 years.
Safer to be sorry as they say.