Fix for 2 or 5 years?

GoonerByron

Hi all,

So know this is a difficult question, and no one has a definite answer with what will happen with mortgage rates, but I am 10 years into owning my home and have always fixed for 2 years and been happy with it.

Around 4 months ago, I locked in a 5 year fixed rate for 3.92% with Natwest prior to my remortgage which is due on 1st March. I was hoping fixed rates for both 5 and 2 year would come down in those next 4 months but it very quickly went the other way with rates rising.

I'm now 2.5 weeks out from my remortgage and I'm getting cold feet on the 5 year with rates still expected to drop and 5 years feeling a long time to be locked in.

It's now very short notice to arrange a 2 year remortgage with another lender without slipping onto my SVR which would cost me a lot even in the first month. Best I'd get is Lloyds at 4.16% with a Yearly Cost of £16,176. Only around £200 more than my 5 year with Natwest.

With Natwest dropping rates today, I could get a 2 year with them at 4.31%. I'm assuming I could just switch to this prior to completion without going through the full remortgage process again? This has a Yearly Cost of £16,546. So thinking this would cost me around £1000-£1200 more than my 5 year over the first 2 years but then rates might have dropped even more after 2 years.

So think my options are -

- The 5 year I've agreed already. 3.92% for 5 years. Think the yearly cost is around £16,000.
- The 2 year with Lloyds. 4.16% for 2 years. Yearly cost of £16,176. (But this probably adds costs with me going onto SVR before getting to completion)
- The 2 year with Natwest. 4.31% for 2 years. Yearly cost of £16,546.

Any advice? My current thinking is to call Natwest and see if I can move over to their new 2 year rate without completely restarting the remortgage and just paying the roughly £50 extra a month to only be locked in for 2 years?

Nailer99

I would go with the 5-year. There's no guarantee that interest rates will fall, and even if they do, most experts expect them to remain above 3% for the foreseeable future. That 3.92% rate is cheaper than any mortgage currently available on the market.

I say this as someone who 2 years ago chose a more expensive 2-year mortgage over a cheaper 5-year mortgage and now regrets that decision.

RelievedSheff

I would choose the 5 year option.

Newbie_John

I'd go with 5.. for the past 2 years everyone has been expecting mortgage rates to drop to 2% in the next 6 months and they are more or less in the same place.
2 years ago I chose 4.4% (for 2 years) over 4.0% (for 5 years) almost being sure that they will be 3% max by now, nope they are higher than April 2023 So for the peace of mind, I will soon go with 5 years.

Hoenir

Rather than thinking about your mortgage payments as a cost.  Look more closely at you'll owe. Once product fees are factored in. 

If a 5 year fix i cheaper than a 2 year fix. Why not take the 5 year fix and make overpayments every month that represent the difference between the two. After two years you'll be quids in without even realising it. 

The expectations that mortgage interest rates are going to fall significantly are misguided. Out of hope. Rather than any commercial reality. Low interest rate era has passed now.