Remortgage - Trying to decide between 2 year fixed and 5 year fixed deal

Redkiwi

Hi, I'm one of the millions coming off a very good mortgage rate this year and so need to make a decision, and torturing myself trying to decide between 2 year fixed, where I'm worse off in short term but potentially much better off long term, or 5 year. I know no one has a crystal ball - but just wondering what other remortgagers are doing?

With so much uncertainty in next 2 years - UK election, US election, wars etc - who knows where we could be :-( 

DE_612183

why not try a tracker?

Redkiwi

DE_612183 said:

why not try a tracker?

Probably down to years of conditioning to say keep away from trackers as they have such a bad rep :-) Probably because I'm in a single parent household where every penny counts, so any uncertainty is daunting. And actually the trackers I was offered by my lender is 1.2% higher than the 2year fixed rate deal... 

Newbie_John

Literally flip a coin.

What rates can you get for 2 and for 5 years?
How many years you have left?
What is your balance?
Can you afford either 2 or 5 years?
Do you do overpayments?
When does you fix end?

Depending on the rates you can get - you can calculate at what rate in 2 years time it would make sense to go with 2 years fixed term - and that's somewhere at 3% or below, and this is your question really - will the rates go below 3% in 2 years time? Nobody knows where they will be in 6 months 

Altior

Redkiwi said:

DE_612183 said:

why not try a tracker?

Probably down to years of conditioning to say keep away from trackers as they have such a bad rep :-) Probably because I'm in a single parent household where every penny counts, so any uncertainty is daunting. And actually the trackers I was offered by my lender is 1.2% higher than the 2year fixed rate deal... 

Logically, a tracker actually takes the risk of making an incorrect decision away. As it will just simply mirror the base rate, wherever it goes. Ordinarily you can make unlimited overpayments fee free, and switch to a fixed rate deal at any time. I'd say it's not a bad option if you are currently uncertain, as long as the lender's margin over the base rate is modest.

This was actually my approach, but when lockdown started I took up a fixed rate offer until 2028 as I had a fair idea what was coming. 

fergie_

Altior said:

Redkiwi said:

DE_612183 said:

why not try a tracker?

Probably down to years of conditioning to say keep away from trackers as they have such a bad rep :-) Probably because I'm in a single parent household where every penny counts, so any uncertainty is daunting. And actually the trackers I was offered by my lender is 1.2% higher than the 2year fixed rate deal... 

Logically, a tracker actually takes the risk of making an incorrect decision away. As it will just simply mirror the base rate, wherever it goes. Ordinarily you can make unlimited overpayments fee free, and switch to a fixed rate deal at any time. I'd say it's not a bad option if you are currently uncertain, as long as the lender's margin over the base rate is modest.

This was actually my approach, but when lockdown started I took up a fixed rate offer until 2028 as I had a fair idea what was coming. 

The problem with trackers currently is the margins seem to be huge. I jumped to a tracker as my mortgage was up at the end of Dec 23 and if I hadn't done that, I would have been on a fix of 5.69% for 5 years...

However, the current tracker rate is 6.18%. Affordable in the short term, but the plan is to then transfer onto a 2y or 5y fix. The rates haven't moved since mid January, so maybe transferring to 4.2% should have been the right call, but the hope is that rates drop closer to 3%. Swaps however have been edging up for the last week.

Maybe we are beginning to see lenders and central reserves starting to align?

Veteransaver

Personally I'd be tempted by a 5 year fix as it's lower than 2 year and trackers, but pick one with generous overpayment terms, Eg 10% of original balance or 20% of loan per year.
My issue with 2 year fixes is really that they really are too short term and don't really offer enough protection.

Altior

As with so many of these financial decisions, there is no right or wrong answer. One simply hopes that the variables move in your favour more often than against.

Personally I feel like we are living in a different era, where the powers that be don't have the discipline of the past. Therefore, even though the prevailing bank rate is not historically high, many are conditioned to feel like it is. In the tug of war I only see downward pressure in the short to medium term, unless rampant reported inflation returns imminently, which is against the odds. So if I had the decision to make right now, I would park myself on the best tracker available.

fergie_

Veteransaver said:

Personally I'd be tempted by a 5 year fix as it's lower than 2 year and trackers, but pick one with generous overpayment terms, Eg 10% of original balance or 20% of loan per year.

Also look to see if its portable (if you decide to move) and also what the remortgaging penalties are. Some go 5, 4.5, 4, 3.5, 1 rather than say dropping 1 percentage point every year.

Beeboo23

In 18 months when mine is due I’ll be getting a 5 year fix. I do overpay by 60% of my fixed payment each month which means my fixed mortgage will be lower regardless of the interest rate rise. I would like the long term certainty of a fixed repayment for 5 years and not to worry about it every 2. 

london21

Personally started a 2 years fix on the 1st Feb.

4.72% 2 years fix no product fees in the hope that rates start to drop by 2026.