10 year vs 5 year fixes
Discussion
I’m looking to remortgage a salary multiple of around 2.5 - 3 on what should be our ‘forever home’. My mortgage broker is looking at 5 and 10 year fixes on my behalf. Apparently some 10 year rates are similar to 5 years at the moment.
10 years seems like a long time and looking about the forum they seem to get a cool reception. No intention to move in the future, but life can throw us all curve balls.
Any experience from others who’ve decided between the two durations?
If it matters I have savings and investments to the side that offset around half of the mortgage value. On paper it seems a good idea to use a bit of mortgage in my circumstances given low rates on offer, but they do seem to be creeping up now.
10 years seems like a long time and looking about the forum they seem to get a cool reception. No intention to move in the future, but life can throw us all curve balls.
Any experience from others who’ve decided between the two durations?
If it matters I have savings and investments to the side that offset around half of the mortgage value. On paper it seems a good idea to use a bit of mortgage in my circumstances given low rates on offer, but they do seem to be creeping up now.
It's what level of risk you feel comfortable with. I'd definitely consider a 10 year if the rate was close to a 5 year.
I tend to see what the rate would save me, versus what it could cost me if rates went skywards. Depending on the value of the mortgage, you might only save a few hundred with a shorter fix, but risk playing a lot more overall if rates go up.
I tend to see what the rate would save me, versus what it could cost me if rates went skywards. Depending on the value of the mortgage, you might only save a few hundred with a shorter fix, but risk playing a lot more overall if rates go up.
I've remortgaged so many people off ten year fixed rates, incurring thousands in ERC's when circumstances dictated they needed to redeem the mortgage for numerous reasons.
Everyone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
Everyone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
Sanest_07 said:
I’m looking to remortgage a salary multiple of around 2.5 - 3 on what should be our ‘forever home’. My mortgage broker is looking at 5 and 10 year fixes on my behalf. Apparently some 10 year rates are similar to 5 years at the moment.
I've just this morning remortgaged half of our current mortgage to a 10 year term at 2.3% with 15 years left on the mortgagee. Our previous 5 year term ends in 30 days and was at 2.25%, the 5 years terms currently been offered is around 2.25% but am pretty sure last month they were below 2% but those deals seem to have been pulled. The other half of our mortgage is at 1.45% for 7 years for a 10 year total term which we signed up for last November, looking at the way inflation is heading I cannot see any chance of getting similar deals ever again for the next 5 years+ hence signing up for the longest term possible.If you need to/plan to move clearly longer deals might not work, but if you are sure to stay than now is time to do it as rate are going up. For us anyways by the end of the 10 year term virtually all of the mortgage will be paid off at an average rate of around 2% which really is quite ridiculously cheap borrowing.
Sarnie said:
I've remortgaged so many people off ten year fixed rates, incurring thousands in ERC's when circumstances dictated they needed to redeem the mortgage for numerous reasons.
Everyone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
This is what I’ve read on here previously which makes me apprehensive… I will check ERC before any commitments made. Is there a norm?Everyone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
Not expecting to be able to pay it off in 5 years but hope to be there in 10.
(I'm not a broker but have had exactly this conversation with a broker recently)
ERCs are brutal for 10yr fixes, typically 5% up to 5 years. Even if you overpay the maximum at the same time as redeeming the mortgage (which might be 10% of the balance at the start of the year) that's a lot.
e.g. even with interest rates very low after 4 years you might have paid of 16% of the principal (4/25). If you need to redeem just before the end of year 5, you have repaid just under 20%, can a further repay 8.4% without penalty (100-16 / 10), and you are charged 5% on the rest. That's an ERC of 3.6% of your original amount. That's like paying another 0.6% on your mortgage rate over those 5 years.
Those numbers are all done in a mad rush, but gives you an idea of what you're (not) getting when you get a cheap 10yr fix.
ERCs are brutal for 10yr fixes, typically 5% up to 5 years. Even if you overpay the maximum at the same time as redeeming the mortgage (which might be 10% of the balance at the start of the year) that's a lot.
e.g. even with interest rates very low after 4 years you might have paid of 16% of the principal (4/25). If you need to redeem just before the end of year 5, you have repaid just under 20%, can a further repay 8.4% without penalty (100-16 / 10), and you are charged 5% on the rest. That's an ERC of 3.6% of your original amount. That's like paying another 0.6% on your mortgage rate over those 5 years.
Those numbers are all done in a mad rush, but gives you an idea of what you're (not) getting when you get a cheap 10yr fix.
Sarnie said:
I've remortgaged so many people off ten year fixed rates, incurring thousands in ERC's when circumstances dictated they needed to redeem the mortgage for numerous reasons.
Everyone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
thankfully ours was the forever house but stuck on a 6.9% interest rate due to punitive ERC as bought just before interest rates dropped lolEveryone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
Sarnie said:
I've remortgaged so many people off ten year fixed rates, incurring thousands in ERC's when circumstances dictated they needed to redeem the mortgage for numerous reasons.
Everyone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
Thanks again to all posters - looks like ERC is 6% for first 5 years then drops each year after. Not sure how that compares to other longer products but compared to 5 year fix it looks to be around 1.5x to 2x the percentage depending on provider and for longerEveryone who takes out a ten year rate states that it's their forever home and they won't ever need to remortgage. Until they do.
Just ensure you know what it's going to cost you if you need to redeem it......
okgo said:
My issue with a longer fixed is potentially wanting to at some point borrow more for building work - am I right or is there the possibility of borrowing more during your term without a whole remortgage?
You can simply apply for additional borrowing, the additional can be a different term/rate to your existing mortgage but obviously only up to a set amount of LTV. We used additional borrowing to go from 50% LTV to 75% LTV to fund building works, and essentially now have x2 mortgage products on the house, both at different APRs and different terms. p1doc said:
thankfully ours was the forever house but stuck on a 6.9% interest rate due to punitive ERC as bought just before interest rates dropped lol
6.9%!!! Surely the ERC charge must be horrific or you must have a tiny mortgage to justify not getting out of that and signing up for a 2% product. The interest on a £200K mortgage at 6.9% is £1500/month versus £330/month at 2%.....
gangzoom said:
You can simply apply for additional borrowing, the additional can be a different term/rate to your existing mortgage but obviously only up to a set amount of LTV. We used additional borrowing to go from 50% LTV to 75% LTV to fund building works, and essentially now have x2 mortgage products on the house, both at different APRs and different terms.
Thanks. Yeh I have flex in the LTV for what I want. Just don’t want to risk a 2 year product (when we would prefer to do the work maybe) and find the base rate is horrible then and pay that on the whole mortgage vs just 1-200k or so that the repairs might cost. onetwothreefour said:
(I'm not a broker but have had exactly this conversation with a broker recently)
ERCs are brutal for 10yr fixes, typically 5% up to 5 years. Even if you overpay the maximum at the same time as redeeming the mortgage (which might be 10% of the balance at the start of the year) that's a lot.
e.g. even with interest rates very low after 4 years you might have paid of 16% of the principal (4/25). If you need to redeem just before the end of year 5,
Are you working on the principle you can repay the entire mortgage over 5 years? If you can afford to repay a significant amount of the mortgage within 5 years why not just shorten the term and have a pay more debt off quickly early on. So instead of 25 year term, get a 10 year term fixed for 10 years, that way you are 100% guaranteed a low rate for 10 year and you will clear the mortgage in 10 years. This is why I've reduced the term on our mortgage to 10 years and 15 years. This way regardless of rate changes, by the time the fix term ends even without overpayment the left over debt becomes much more manageable. ERCs are brutal for 10yr fixes, typically 5% up to 5 years. Even if you overpay the maximum at the same time as redeeming the mortgage (which might be 10% of the balance at the start of the year) that's a lot.
e.g. even with interest rates very low after 4 years you might have paid of 16% of the principal (4/25). If you need to redeem just before the end of year 5,
If you need to move its clearly a different matter.
Edited by gangzoom on Thursday 3rd March 16:25
gangzoom said:
Are you working on the principle you can repay the entire mortgage over 5 years?
No (but it might be a consideration - and you might not want the constraint of higher payments at the beginning that shortening the term requires)gangzoom said:
If you need to move its clearly a different matter.
This (for example). Or divorce and one half wants the equity so a remortgage is needed. Or whatever. Sarnie has already says that he sees it happen a lot.For what it's worth, I'm likely to have a similar decision to make, and it is a very close call. e.g. Nationwide 1.79% for 5yrs or 1.99% for 10yrs. I'm leaning towards 10yrs, because they allow overpayments of 10% of the original loan per year, and I'd hope (but realise this might not be possible) that in the event I needed to sell I might be able to overpay in an extra year, so worst case is paying ERC on 80% of the original loan. Also, we would probably go for a shorter mortgage than 25 years, which means that the balance decreases a bit quicker naturally, so e.g. with 20yr mortgage, at 5yrs, the balance is already down to 75% and down to 65% with a 10% ERC-free overpayment.
I'd never personally go longer than 5 years and took a 5 year fix on the new home we completed on in December. As others have said, the ERP (early repayment penalty) can be horrendous and s
t happens so who can really predict their life for the next 10 years.
I'm an IFA bit haven't done mortgages for anyone else but myself for 20 years when I used to be a mortgage broker. I also never arranged a mortgage deal longer than 5 years back then and it was nothing to do with fees, it just seemed common sense good advice.
I did sadly arrange a number of mortgages for people divorcing and taking penalty hits back then.
From a numbers and interest rate perspective 10 years does make sense, but in an imperfect world I feel that gets overridden.
t happens so who can really predict their life for the next 10 years.I'm an IFA bit haven't done mortgages for anyone else but myself for 20 years when I used to be a mortgage broker. I also never arranged a mortgage deal longer than 5 years back then and it was nothing to do with fees, it just seemed common sense good advice.
I did sadly arrange a number of mortgages for people divorcing and taking penalty hits back then.
From a numbers and interest rate perspective 10 years does make sense, but in an imperfect world I feel that gets overridden.
UrbanAchiever said:
Mortgage brokers don't like 10 year fixes as it means they can't earn any mortgage commission off you for another 10 years.
Incorrect.If that was the case we'd be telling people to take two year rates. Or tracker rates. Fortunately, the FCA are well ahead of you measuring the data, that a broker advises between different length fixed rates. Those that only recommend short term rates, in the current environment are hauled over the coles.
Clients are always free to do what they like at the end of 2,5 or 10 year rates. So if if they took a shorter rate, ultimately they can do what they like so no benefit to a broker.
This isn't the 80's where brokers were just basically sales people banging out anything to produce an income. This is actually possibly the most heavily regulated industry in the UK. Every pen stroke has to be justified.
My advice is based on my experience of transacting mortgage business along in almost every situation of "What would I do?".
In this scenario, as posted above, I have redeemed dozens of ten year fixed rates, for a variety of reasons. I myself have taken a five year fixed rate recently. I still provide clients with ten year rates all the time, we just discuss it, the client gives their opinion, I impart my experience of other similar cases, the client is then free to heed it or not........
Jules Sunley said:
From a numbers and interest rate perspective 10 years does make sense, but in an imperfect world I feel that gets overridden.
I would say its a crazy mad world with zero guaranteed of anything in the future with what's going on right now. But that's one of the reasons I've jumped on board a 10-year fix, at least the mortgage repayment amount is something I don't worry about now for a good while.The last 5 years have gone in what seems like a blur, who knows what's going to happen going forwards. But I'm 100% convinced we are never going to see interest rates on mortgages been so cheap again.
At historic values of 6-7% we could still afford our mortgage but it would certainly require more financial scrutiny. Having signed up to a 10 year fixed means I now don't need to worry or even think about interest rates for a good long time. If Inflation does go nuts now I can just watch is erode our housing debt for free.
Am quite thankful for the world banks policy of 'quantaive easing' over the last 10 years. Historical cheap interest rates has enabled us to climb the property ladder at least 10 years ahead of schedule. The world right now feels like it's heading into a real unknown, so knowing our mortgage rates are now essentially static for pretty the remaining bulk of the debt is quite comforting
.Looking at signing a ten year this month myself. I’ve sanity checked with all my mates who are financially astute (they think I’m insane!).
The ERP is a whopping £13k within the first 5 years
Which considering I’d be able to pay the whole lot off in an expected 3 years does look insane!
However, as a property developer in reality the collateral in my house, say £400k odd against a £200k mortgage is the cheapest money I can access for builds.
I think of that £13k as a cost of doing business.
The ERP is a whopping £13k within the first 5 years
Which considering I’d be able to pay the whole lot off in an expected 3 years does look insane!However, as a property developer in reality the collateral in my house, say £400k odd against a £200k mortgage is the cheapest money I can access for builds.
I think of that £13k as a cost of doing business.
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