Fixed term 5 or 10 year?

readysaverone

Hi all.
Our 5 year fixed term finishes in July this year, was at 2.2%, so obviously I wish I'd fixed for 10 years.
Anyway, now I'm being offered 4.29 for 5 and 4.79 for 10 years fixed.
Ultimately the difference between these 2 is £65 per month.
My question is, does anyone think it's a bad idea to fix for 10 years?
My thinking is, yes if interest rates come down I could have got a better deal = annoying. If interested rates spike and I get caught in a bad deal over the next few years it could well = leaving the home. Also if I can (just about) afford the 10 year fixed payments now, my earning power/wages should increase over the next 10 years, so in theory it should only become more affordable?

Please let me know your thoughts.

Thanks.

DE_612183

You summed up your question, and really answered it yourself.

It's down to risk - how much are you willing to take above peace of mind.

No one has a crystal ball - only you can decide what you are comfortable with.

When you took out the 2.2 - how did you feel when rates went down below that?

readysaverone

DE_612183 said:

You summed up your question, and really answered it yourself.

It's down to risk - how much are you willing to take above peace of mind.

No one has a crystal ball - only you can decide what you are comfortable with.

When you took out the 2.2 - how did you feel when rates went down below that?

Thanks, yes I'm aware that I'm just kind of rambling and using this forum as a sounding board. I just don't want to make an obvious error.

Good point! Once we were locked in I didn't even really look at the mortgage rates, so wasn't bothered that it went below.

Newbie_John

I would only consider 10 year fix if I had a decent overpayment plan in place - easier for financial planning if to overpay or to save.

5 or 10 years is a very long time, sure in 5 years the rates can be 1% but can also be 10%.. nobody knows that for sure. 5 years is a really long time, you can lose job, you can decide to move - fixing for 10 years makes it little bit more difficult..
And as you say about the £65 monthly difference - that you can just make it, wouldn't it be financially more safe to go with 5 years and save the £65 difference monthly? 

Let's say that in 5 years rates are < 4.79% - all good.
If more than about 5.50% (as you've paid less for 5 years) then you can always remortgage and extend your mortgage period lowering your monthly payments, sell and downgrade, switch to interest only, your salary can double by then and it may actually be easy to pay it.

Saying all that, I would go with best rate available (maybe skipping 2 year fixed for stability reason) - but there isn't a right or wrong answer.

Zoe02

Personally, 5 years max.

I have gone for 2 years earlier this month.

amnblog

To take a 10 year product you need to be confident you will have no major life changes over that period.

In 10 years people many experience, breakdowns in relationships, loss of jobs or businesses, health issues, all could lead to necessary changes that affect the mortgage. Do you really want to be locked in to a rate that long and looking at a hefty redemption penalty?

Hoenir

You could take the 5 year fix and over pay by £65. 

Whatever interest rates might do. You'd owed at least £4k less. When you next need to fix. 

Bigphil1474

Agree with above. The long term plan seems to be to get interest rates lower than they are. Whether that works or not, we'll have to wait and see. However, I think a 2 year fix is probably more of a gamble than a 10 year fix - rates could shoot up if world events kick off, or float down if they don't - a 5 year fix is more of a goldilocks level, for me at least.

We've gone 5 years at 4.2% but I can overpay by 25% of the monthly payments, so I'm fairly comfortable. Realistically, after 3 or 4 years or so, you could always look at re-mortgaging if rates are much lower, depending on the ERC. 

pavvers

Another consideration is how your LTV might change in 5 years time.  In 2017, I fixed for 10 years because rates were so low that it seemed like an obvious win.  5 years into that fix, I bought myself out of it (paid an early repayment charge) and fixed for a further 5 years at that point.  Again though, rates were very low then compared to now.

What I failed to consider with the initial 10 year fix is that after 5 years, my house would go up in value enough to knock me down into the next LTV lending bracket and therefore better rates anyway.  Hindsight is a wonderful thing of course and ultimately it's what you're comfortable with.  But I would definitely look at what LTV bracket you are in now and whether you could drop one (or more) by your house appreciating over 5 years.