Remortgage time....2 or 5 year fixed?

TF03

Hi all

After some thoughts. I will start by saying, yes I know that no one knows for certain and we have no crystal balls! 

Currently on a 1.39% 2 year fix (if only I'd done 5 at the time....) which ends in April with Natwest. 
We have a very good LTV  and a lot of equity in our property so we are already in the top range of best deals.
We are going to have to stay with Natwest as my OH has had a planned pay decrease as she completes a new qualification for work. I've had a recent pay rise so we aren't too much down but we'd rather avoid changing lenders at this time. 

My broker has offered a 2 year fixed rate with Natwest of 4.49% which will increase out monthly payment by £298 or a 5 year fixed rate of 3.94% which increases our montly payment by £241. Whilst never ideal, we can afford it both rates. 

My question is, should I go for the 5 year or the 2? My broker is predicting that rates might stagnate for a while or even edge up ever so slightly this year. However the reading I've done suggests that by the end of 2025 rates should be more down into the low to mid-3s again. Do I take the lower cost now with the 5 year but run the risk of maybe paying a bit more for the last couple of years of it or go for the 2 with a little gamble that I can renew early 2026 on a potentially lower rate?

My gut is saying take the 5 as if I'd done that last time, I'd still be sitting pretty for 3 years. And that rates are very unlikely to drop back to the 2s or 1s any time soon. But the 2 year does obviously give us options much more sooner. 

Thanks all! 

naf123

I am in similar boat. I've worked out every % increase costs me £100 a month.

So if it goes 1% lower for the last 3 years of the fix e.g if interest went to 2.89%, it would cost me  £1200*3 = £3600 .

Don't know what to do!

easy

In your shoes I'd go for the 5 year fix.  3.94% seems pretty good to me,  the very low rates we have had over the last few years are VERY exceptional.  I'd be hugely surprised to see rates fall back to there again anytime soon  -  especially with issues like Ukraine,  the Red Sea etc pushing up consumer prices constantly.  

But as you say ...  no crystal ball.

Newbie_John

You still have time, I would wait - product transfers are really quick.

In the meantime focus on a long term strategy - your mortgage is still probably like 20 years long - so you'll be going through this many times.

As you see "if I only picked 5 years term 2 years ago", you had no chance of knowing and right now you have no chance of knowing what would work out better. The only way to save on mortgage is by overpaying/saving - everything else is a gamble - it sometimes works better sometimes it doesn't.

Different people have different approaches - some always choose best 2 year fix for more freedom, some take 5-10 year long for security - to know what you'll be paying each month. Some pick and choose.

The differences are quite low in your case - £60 a month = £700 a year.
Choosing 5 years you go for security, choosing 2 years you gamble that rates will be 3% or lower in 2 years to make up the difference - and nobody knows that - and that's really the question you are asking here - what would be the rate in April 2026  ?

Little_bit_taller

Have you been doing any overpayments?

london21

I am going for 2 years fix 4.72% no product fees.

It is a gamble but by 2026 believe rates would have dropped. 

Zerforax

No one knows the answer for the future interest rates so I think a lot of it relates to your own individual situation and what you think will happen over the next 2 to 5 years. The rates may go up a bit or come down a bit over the period.

What are the product fees (if any) on the 2 vs 5 year fixed deals?

Do you value certainty or flexibility? If you are stretched at the moment then the 5 year certainty is probably better for you. Or are you more likely to make lots of overpayments over the next 2 to 5 years and therefore a 2 year fixed gives you more flexibility?

RobRedhill

TF03 said:

Hi all

After some thoughts. I will start by saying, yes I know that no one knows for certain and we have no crystal balls! 

Currently on a 1.39% 2 year fix (if only I'd done 5 at the time....) which ends in April with Natwest. 
We have a very good LTV  and a lot of equity in our property so we are already in the top range of best deals.
We are going to have to stay with Natwest as my OH has had a planned pay decrease as she completes a new qualification for work. I've had a recent pay rise so we aren't too much down but we'd rather avoid changing lenders at this time. 

My broker has offered a 2 year fixed rate with Natwest of 4.49% which will increase out monthly payment by £298 or a 5 year fixed rate of 3.94% which increases our montly payment by £241. Whilst never ideal, we can afford it both rates. 

My question is, should I go for the 5 year or the 2? My broker is predicting that rates might stagnate for a while or even edge up ever so slightly this year. However the reading I've done suggests that by the end of 2025 rates should be more down into the low to mid-3s again. Do I take the lower cost now with the 5 year but run the risk of maybe paying a bit more for the last couple of years of it or go for the 2 with a little gamble that I can renew early 2026 on a potentially lower rate?

My gut is saying take the 5 as if I'd done that last time, I'd still be sitting pretty for 3 years. And that rates are very unlikely to drop back to the 2s or 1s any time soon. But the 2 year does obviously give us options much more sooner. 

Thanks all! 

I've just done the 5 year at 3.94. I don't regret it. With product fees the difference between the 2 and year will be very tight unless the rate when you remortgage in 2 years is well below 3% the long term forecasts (although unreliable) suggest it might get to around 3% in. 2025 and stay there. If we hit a recession it may go lower again. If china invades Taiwan or the middle east goes to full in war it might go up.

3.94 seemed a good safe bet. I'm quite happy I went for it.

darkcloudi

Its difficult to see where rates will be, like in my circumstances i reserved a rate of 4.95% (5 years fix) with Nationwide that started 1st Nov, that month it dropped to 4.8%, but now this month I see it at 3.99%. (Was originally thinking of the 10 year fix which I glad I didn't, but although some would have preferred that as it gives them re-assurance for a longer term)

The close to 1% drop is a bit of a kicker, but at the time the 2, 3 year fixes were quite high and didn't want to fix that high, hence the 5 year fix, it all comes down to your personal circumstances, and probably not worth stressing if rates did drop (I try not to).

Newbie_John

darkcloudi said:

Its difficult to see where rates will be, ..

Exactly, it's worth to have a look at this thread that's been running for 2 years:
https://forums.moneysavingexpert.com/discussion/6432286/are-we-expecting-boe-to-remain-5-25-on-1st-february-2024/p1

You'll see it's like playing lottery.

The predictions for early 2024 vary from - back to normal (for those who had first mortgage in 70s, 80s..) which is 10%+ and those who had their first mortgage during Covid at 1%   

Yorkie1

I was doing some maths on this yesterday evening to help me decide whether to go with 2 years @ 4.49% or 5 years @ 3.99%.

Using the MSE calculators as a guide, I compared the outstanding balance on both products after 2 years, and then worked out what follow-on rate I would need for 3 years after the end of the 2 year product in order to match the balance at the end of the 5 year product. It came out at about 3.67%.

Given the uncertainties of the next few years, not least with various conflicts and Brexit costs, I decided that there was no guarantee that rates will be significantly lower than 3.67% in 2 years' time - and could well be higher, and so I went for the 5 year product.

It really is crystal ball gazing time, but I'm happy with the choice.