How long to fix mortgage rate?

How long to fix mortgage rate?

Author
Discussion

SELON

1,172 posts

128 months

Tuesday 12th July 2016
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Without a crystal ball, it's tricky to see where rates will go. But some good advice already posted. My only thing to add is the spectre of inflation. You'll see whether this is going up in the next few months. Expectation is that that it will rise. Only real question is by how much and whether that will be enough to see some rate hikes in the medium term.

Either way, fixing right now doesn't seem to make a lot of sense. Unless you really have a pessimistic view of the economy, in which case, don't buy a house at the moment!

bmwmike

6,918 posts

107 months

Tuesday 12th July 2016
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I'm just about to fix 5yrs at 1.99% with 10% over payment possible. Can't see a tracker being much cheaper and I wouldn't overpay by 10% in any case. A 10yr fix was 2.79% but I prefer 5 yr view.


brickwall

5,192 posts

209 months

Tuesday 12th July 2016
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It also depends on your own personal situation. How long do you expect to stay in the house? How stable is your income?

If you don't expect your income to change a lot in the future, and you want to stay in the house a long time, you de-risk yourself by taking a 5-10 year fix. On the other hand, if you expect to have changes in your situation (either up or down), then you're likely to want the ability to overpay or exit the mortgage early with minimal penalties.

Me? My mortgage is up for renewal later this year, and I think I'll take a 2-year discounted tracker, as I can't see myself staying in the house much longer than that, and it's 50:50 at best whether I'll be in the same job beyond 2 years.

Horses for courses.

mjb1

2,552 posts

158 months

Wednesday 13th July 2016
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I'm in a very similar position, trying to decide between 2, 3 or 5 year fix. First time buyer, borrowing 130k, 32 year term (although hoping to pay it off quicker). Mortgage advisor quoting me products with a fee built in (£1000), so a 2yr fix has a rate of 1.38%, £420/month repayments. The 5yr fix has an interest rate of 2.18%, and monthly repayments of £470.

At first the 2yr fix looks much better value. But, assuming interest rates stay the same for a while at least, and I refix at the end of each 2yr period, there will be another £1000 fee added to the loan each time? According to my calculations, after 10 years (with 5x 2 yr fixes, or 2x 5yr fixes), I'll have paid about 6k more on the 5 year fix, and the remaining balance will be almost the same.

So I'm trying to weigh up if the longer fix is going to be any benefit to me - basically are fixed interest rate offers likely to increase in the next 8 yrs, to the point that it'll add more than 6k onto my mortgage??? I'm strongly considering taking the two yr fix now, and re evaluating whether to take a longer fix two years from now.

I'm not sure the base rate has bottomed out at present, and even if it does go lower, I can't see the fixed rate offers going lower than 1.38% in the next two years. But equally I can't see the base rate going up in the next two years. Even so, if the banks think the long term outlook is for higher rates, then I guess they'll increase the fixed rate for longer term fixes, so the 2.18% 5yr might not be on the table two years from now? confused

Also, I'm presently paying 100/month pension contribution into a SIPP, but I'm strongly considering halting that (temporarily at least), and putting the extra into overpaying the mortgage instead. Is that a sensible idea?

bogie

16,342 posts

271 months

Wednesday 13th July 2016
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Work out the total cost to fix inc the charges and often its not that good, considering in 2-3 years to need to re-fix higher or it resorts to a higher interest rate. So then you go to fix again and pay another £1500 in charges for 2 years fix. Overall you may as well have paid 4% instead of the headline sub 2% fix to entice you into the deal

Ive fixed twice in the last 22 years of having mortgages, both times timed it wrong, would have been better off on SVR. This time around the fix ran out in 2007 and since my 6.5% has dropped to 2.5% since and I just kept the payments the same. Not paying ££ to fix now, its not like its going to 10-15% overnight like last time ....is it ? wink

chr15b

3,467 posts

189 months

Wednesday 13th July 2016
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In a similar position so watching the replies here.

I've got between 60 and 70% LTV depending on valuation and have seen two offers I'm considering, both 2.49% one is fixed for 5 years, the other 10 years but with 1k fee.

I could look at ones with lower fees but they're all 2 years.

Main key things for me are, I've no desire to move or sell in the near to medium future and I can't see me being in a position to pay off the mortgage or any significant portion in the next 10 years

rsbmw

3,464 posts

104 months

Thursday 14th July 2016
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Are you sure you won't move inside 10 years? I was a bit naive to erc's on our first mortgage and we fixedor 10 years. When we moved after 4.5 years it cost me £6k. You live and learn.

Ozzie Osmond

21,189 posts

245 months

Thursday 14th July 2016
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Inflation has been low for some years but one of the big benefits of a 25 year mortgage is that it stays at a fixed (reducing) sum while the value of the house rises with inflation.

Wages should also rise with inflation and this means that for any given rate of interest your monthly payments reduce over time in real terms. This should reduce the need to "fix" because inflation effectively helps you develop some "headroom" to protect against increased interest rates.

I'm no fan of fixing, mainly because of the cost of the "fix" in the first place and the fact you can get raped when the fix expires. However, I do understand that some people may want the certainty of a fix, at least until inflation has started to erode the real size of the mortgage.

bmwmike

6,918 posts

107 months

Thursday 14th July 2016
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Ozzie Osmond said:
I'm no fan of fixing, mainly because of the cost of the "fix" in the first place and the fact you can get raped when the fix expires.
What do you mean by this, that the margin for tracker rates when coming off the fix may be worse than taking a tracker today ?

p1doc

3,111 posts

183 months

Thursday 14th July 2016
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i am stuck on svr at present till aug 2018 as epc is 3% of outstanding money so no point me changing till 3 months before epc runs out as otherwise epc plus fee will negate any money saved on lower rates-typical

Ozzie Osmond

21,189 posts

245 months

Thursday 14th July 2016
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bmwmike said:
What do you mean by this, that the margin for tracker rates when coming off the fix may be worse than taking a tracker today ?
What I mean is that with a "variable rate" mortgage you know that what you pay will always be bank of England base rate plus, say, 1.5%.

If you go for a "fix" you know exactly what you are going to pay for the period of the fix but you have no idea what rate you will be paying for the next tranche of years. You don't know what the bank's "standard variable rate" will be (relative to base rate) and you don't know what the cost of a new "fix" will be. For this reason if I ever did "fix" I'd want it to be for a good long period, in the hope that inflation will have done its job by the time the fix comes to an end.

bmwmike

6,918 posts

107 months

Thursday 14th July 2016
quotequote all
Ozzie Osmond said:
bmwmike said:
What do you mean by this, that the margin for tracker rates when coming off the fix may be worse than taking a tracker today ?
What I mean is that with a "variable rate" mortgage you know that what you pay will always be bank of England base rate plus, say, 1.5%.

If you go for a "fix" you know exactly what you are going to pay for the period of the fix but you have no idea what rate you will be paying for the next tranche of years. You don't know what the bank's "standard variable rate" will be (relative to base rate) and you don't know what the cost of a new "fix" will be. For this reason if I ever did "fix" I'd want it to be for a good long period, in the hope that inflation will have done its job by the time the fix comes to an end.
Gotcha. Thanks. My view is similar except that I feel five years is sufficient vs. uncertainty of the longer time frame in regards moving country and life events etc.