Remortgaging: 2, 3, or 5 years fixed?

andre_xs

Dear All,
We bought our house 10 years ago and so far had two 5-year fixed-term mortgages (first home, so no other mortgage experiences). We are now due to remortgage, and I met our mortgage broker today.

We have pretty similar offers:
1. 5 year fixed at 3.89% for £1315 per month with Nationwide. But we are currently with Westbrom, so a new application (tedious paperwork?) would be required, plus £1250 fees. These fees are effectively around £21/month for the 5 years, so it would be £1336 / month
2. 2-year fixed at 3.99% for £1321, staying with WestBrom. Same deal available for a 3-year fixed. Easy change to no product, no fees.

While Option (2) is clearly easier and cheaper (£15/month = £900 saved in 5 years), my wife is currently on a fixed-term contract for the next 2-3 years. If things go a little unlucky, she may need 1-2 years to find a new job. With the current rate of roughly £1320 we'd be fine to pay from my salary alone. However, if we are unlucky and has no job and at the same time (in 2-3 years) interest rates jump up, it might get a bit tight just on my salary alone. Thus, we'd prefer the safety of the 5-year contract. And on the other hand, it seems that it is expected that interest rates decrease in the next year (but also in the next 2-3 years??).

Thus, we're a bit undecided between (1) playing it safe but more tedious process vs (2) potentially saving money (£900 or more if rates decrease at renewal at 2/3 years) and having the smooth remortgage work.

If you have any tips or recommendations, or aspects we haven't thought of so far, this would be greatly appreciated.

Of course I'm aware that no one can predict interest rates in 2-3 years, a new crisis or political changes can change everything in the shortest time...

Best wishes,
Andre

El_Torro

It's always a gamble of course, though from what you have said about your situation I would go with Option 1. You might end up paying a higher interest rate in years 4 and 5 than what is on offer then but at least you know now what you will be paying. More importantly you also know you can afford it, even if your wife has no job.