Which offer should we take?

ncfcfan

Hi all, we’ve come to the end of our mortgage term which was a 5-year fixed on 2.2% for 35years and we were paying approx £1050 per month. Our first one!

Our newest offer is for 30 years, 4.97%, fixed for 5 years. It would be approx £400 per month more. We’re not super comfortable being tied into this for 5 years, but know 2 years would be even more expensive for us. Our fa looked at other vendors, the difference was negligible.

Our FA also presented another 35year which would make it a bit more manageable for these 5 years. 

My question is what’s the drawback of doing another 35 year term when in 5 years time when that comes to an end we could do a 25 year term, almost like it never happened?

Please let me know your thoughts. Thanks a lot

housebuyer143

I always take the longest term to commit to the lowest payments and then over pay if I want to. You can always pay more, you can't pay less.

BikingBud

You might wish to consider total amount payable, as the interest paid over the extra 5 years although appealing on a monthly basis ties you in for 5 more years, years you have already paid down, and the total interest paid over the life of the loan will rise significantly.

There are many that have plodded along with low interest rates for ~15 years and no consideration of rate rises when there was significant opportunity to plan for that event and stash some cash.
 
So what you may wish to consider is, if you get a lower monthly payment, that you pay any extra cash into savings or similar with higher rate than the mortgage to ensure that you can bring the loan back under your own control when the next rate change occurs.

Don't reduce the payment, then squander the cash.

amnblog

The longer the mortgage term the more interest you pay, the more your overall cost to settle the mortgage.

Focus on keeping the term as lower as term within your budget, not extending it.

Hoenir

ncfcfan said:

My question is what’s the drawback of doing another 35 year term when in 5 years time when that comes to an end we could do a 25 year term, almost like it never happened?

The low interest rate era has passed. With 30 years to run there's nothing to say that rates won't move higher than they currently are at some point. To make any impact overpaying the mortgage should be the objective. However small, it will make a difference as the interest saving compounds. 

movilogo

With interest rates poised to go down soon, better not to tie yourself with a long fixed deal. 2 years fixed is a good strategy in current market.

BikingBud

movilogo said:

With interest rates poised to go down soon, better not to tie yourself with a long fixed deal. 2 years fixed is a good strategy in current market.

🤨🤔😖 🔮🔮🔮🔮🤨🤔😖

BarelySentientAI

BikingBud said:

movilogo said:

With interest rates poised to go down soon, better not to tie yourself with a long fixed deal. 2 years fixed is a good strategy in current market.

🤨🤔😖 🔮🔮🔮🔮🤨🤔😖

What about "with interest rates looking more likely to go down than go up"?

BikingBud

Not sure I would hedge either way, which appears to be fence sitting but just too many personal circumstances and priorities we don't know but also potential for massive changes post GE.

But to say with such confidence, "poised to go down soon" when the BoE were cognisant of the forthcoming potentially massive shift in fiscal policy post GE and in the absence of any great details about the OP's real situation, is not good advice!

I would not offer specific advice, primarily because I'm just some pratt on the internet. Also we recognise it is not just about the mortgage but the way all of your financial arrangements work together.  Therefore I would always suggest the OP seeks education to understand what makes a difference and how to exploit the loan for their own benefit not for the bank's benefit, hence my earlier post. 

Take all possible steps to control the mortgage, don't let it control you.