Mortgage Interest rate advice - FTB

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Tholbear
Tholbear Posts: 3 Newbie
in Mortgages & endowments
Could someone please advise regarding the best deal in my situation.

I have an option of going for either 2yr fixed rate at 1.75 or 5yr fixed rate at 2.14 for a mortgage of 175000. Just wanted to understand which will be the better option out of the two? I understand we cannot predict the interest rate increase in future but is it better to go for 2yr now and risk the increase in interest rate or play it safe and choose 5yr fixed?

Thanks in advance

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  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    You don't provide enough information to quantify the options that can help you make the choice.

    Add term and payments for each option
  • Tholbear
    Tholbear Posts: 3 Newbie
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    Term is 34 years

    I don't remember the precise numbers but 2yr fixed works out to around £570pm and £615 for 5yr
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    £175k 34years going with a £605 payment(2.14%) on both in 2 and 5 years you would owe

    £175,000 1.75% £605pm £166,463 £153,084
    £175,000 2.14% £605pm £167,824 £156,468

    at Y2 taking a new rate(over 3 years) of 2.43% will leave you with £165,468.

    You have 2x0.25% rise protection built in at Y2 taking another 2y.

    a drop in LTV may also give a bit more


    You can do the same calc for 1,2,3 rises at Y2 and see what protection is still there at Y4

    or rates don't rise and you are upto £3k behind taking the 5y now.


    Don't forget to factor in the fees at this level of borrowing the fee based rates are often best.
  • Tholbear
    Tholbear Posts: 3 Newbie
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    Thanks for the detailed explaination. Looks like 2yr term will work out better.
  • dimbo61
    dimbo61 Posts: 13,716 Forumite
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    Yes the 2 year term is cheaper but are you looking at the Big picture.
    What LTV will you have in 2 years when you need to remortgage ?
    Would 5 years give you security ? Maybe get the LTV down to 80/75%
    Life plans and events kids, job, age, career, pensions
    Is this a studio flat or 3 bed detached house ?

    FTB so new to the mortgage game and owning property.
  • enthusiasticsaver
    enthusiasticsaver Posts: 15,594 Ambassador
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    On first appraisal the 2 year lower fixed rate is the more attractive deal but it is not just about interest rate. Do you see yourself staying in the house for more than 2 years and should interest rates rise after 2 how difficult would you find it to cope with a higher monthly repayment?
    I’m a Forum Ambassador and I support the Forum Team on the Debt free Wannabe, Budgeting and Banking and Savings and Investment boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com. All views are my own and not the official line of MoneySavingExpert.
  • getmore4less
    getmore4less Posts: 46,882 Forumite
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    if the 2y rates went up 0.5% it would still be less than the 5y fix payment
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