What Are The Downides to a FRM, Should I get 2yr or 7yr?

Genex · 18 July 2019 at 3:51PM

I'm reading on the disadvantages to a FRM but still have questions.

I'm not in a position where I can apply for a new mortgage / switch lenders at the moment.

I'm uncertain as to what the big downside is to a 7yr vs a 2yr FRM, apart from potentially lower interest rates - which I'm fine with.

I pay £560 a month now and while I'm not planning to, I could move within the next 7 years, so what would be the big deciding factors between

2yr 1.99% at £545
7yr 2.19% at £560

Obviously the 7yr has a higher rate, I'm ok with that. I'm more uncertain as to how moving or selling would affect it. If I got a 7yr and moved next year am I going to be hit with huge fees somewhere that I wouldn't get with the 2yr? That kind of thing. From what I understand if I move or sell I would need to pay an early settlement fee regardless if it's a FRM or VRM.

After reading, I believe that the rates are low now and in a good place and I believe will go up in the future. So I'm looking for the "catch" in the 7 vs the 2

Hope that makes sense

I understand an am ok that I'll lose out if the rates drop below the FRM rate and I'm ok with the difference between 1.99% and 2.19%

Edit: What if I phone up and they say they could do the 7yr at 1.99%? Would that be a no brainer do it?

sal_III · 18 July 2019 at 3:57PM

The main downside of a fixed deal is that there are usually hefty ERC so if you want to sell and can't "port" the mortgage you are stuffed.

Genex · 18 July 2019 at 4:26PM

sal_III wrote: »

The main downside of a fixed deal is that there are usually hefty ERC so if you want to sell and can't "port" the mortgage you are stuffed.

Thanks, so between the 2 and the 7, the only real difference is that 0.2% rate? If I sold with either I'm going to have to pay ERC - I know it's specific, but would the 7yr be typically higher or have some other overhead to worry about?

[Deleted User] · 18 July 2019 at 6:37PM

The 7 year fixed probably has ERC of 5% or more. The 2 years will have 2% i would guess.

LRmortgage · 18 July 2019 at 6:47PM

In general the longer the fix, the higher the early repayment charges are, especially in the earlier years.

Depending on the lender and product but as an example a 2 year fixed rate may have a 2% early repayment charge in year 1 and 1% in year 2. However a 7 year fixed rate could have a much higher starting point such as 7% in year 1, 6% in year 2, 5% in year 3 etc. I think you get my drift.
This isn’t always the case though, so worth checking out or speaking to a broker.

Genex · 19 July 2019 at 10:59AM

Thank you, that's definitely something to look out for then! It's looking like a 7 year (there's also a 5) might be better, the costs from even a small rise is actually quite an impact, a 1% rise in rates equates to over a 10% rise in monthly payments

JimmyTheWig · 19 July 2019 at 11:14AM

Assume you won't be able to port the mortgage.
Assume you won't be able to afford the ERCs.

That would mean that you won't be able to move during the fixed period.
If you are as certain as you can be that you want to be there for 7 years, then the 7 year fixed rate sounds good.

What Are The Downides to a FRM, Should I get 2yr or 7yr?

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