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  • FIRST POST
    • Genex
    • By Genex 18th Jul 19, 2:51 PM
    • 33Posts
    • 3Thanks
    Genex
    What Are The Downides to a FRM, Should I get 2yr or 7yr?
    • #1
    • 18th Jul 19, 2:51 PM
    What Are The Downides to a FRM, Should I get 2yr or 7yr? 18th Jul 19 at 2:51 PM
    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?
    Last edited by Genex; 18-07-2019 at 2:55 PM.
Page 1
    • sal_III
    • By sal_III 18th Jul 19, 2:57 PM
    • 1,028 Posts
    • 1,023 Thanks
    sal_III
    • #2
    • 18th Jul 19, 2:57 PM
    • #2
    • 18th Jul 19, 2:57 PM
    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
    • By Genex 18th Jul 19, 3:26 PM
    • 33 Posts
    • 3 Thanks
    Genex
    • #3
    • 18th Jul 19, 3:26 PM
    • #3
    • 18th Jul 19, 3:26 PM
    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.
    Originally posted by sal_III
    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?
    • JMA74
    • By JMA74 18th Jul 19, 5:37 PM
    • 349 Posts
    • 238 Thanks
    JMA74
    • #4
    • 18th Jul 19, 5:37 PM
    • #4
    • 18th Jul 19, 5:37 PM
    The 7 year fixed probably has ERC of 5% or more. The 2 years will have 2% i would guess.
    I am a Mortgage Adviser

    You should note that this site doesn't check my status as a Mortgage Adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • LRmortgage
    • By LRmortgage 18th Jul 19, 5:47 PM
    • 308 Posts
    • 142 Thanks
    LRmortgage
    • #5
    • 18th Jul 19, 5:47 PM
    • #5
    • 18th Jul 19, 5:47 PM
    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.
    I am a Mortgage Adviser
    You should note that this site doesn't check my status as a mortgage adviser, so you need to take my word for it. This signature is here as I follow MSE's Mortgage Adviser Code of Conduct. Any posts on here are for information and discussion purposes only and shouldn't be seen as financial advice.
    • Genex
    • By Genex 19th Jul 19, 9:59 AM
    • 33 Posts
    • 3 Thanks
    Genex
    • #6
    • 19th Jul 19, 9:59 AM
    • #6
    • 19th Jul 19, 9:59 AM
    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
    • By JimmyTheWig 19th Jul 19, 10:14 AM
    • 11,871 Posts
    • 11,406 Thanks
    JimmyTheWig
    • #7
    • 19th Jul 19, 10:14 AM
    • #7
    • 19th Jul 19, 10:14 AM
    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.
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