Mortgage - 2 or 5 yr fix?

[DonnyMac]

Hi chaps,

Last time I renewed my mortgage I was going through a divorce in the height of the financial turmoil so had to take what I could get, this time round I'm in a better position to make a decision, this is what I have -

£320k required @ 63% LTV (3 pesky PC)

I've got these offers -

2yrs fixed @ 2.19% - £1,386.47 /mth
5yrs fixed @ 2.99% - £1,516.31 /mth

I have no desire to sell this house in the medium term, should I wish to upgrade I'd just buy another and keep this one running for the kids.

A) are the above figures any good?
B) if so, which to go for?

Thanks in advance,
Donny

[Sarnie]

DonnyMac said:

Hi chaps,

Last time I renewed my mortgage I was going through a divorce in the height of the financial turmoil so had to take what I could get, this time round I'm in a better position to make a decision, this is what I have -

£320k required @ 63% LTV (3 pesky PC)

I've got these offers -

2yrs fixed @ 2.19% - £1,386.47 /mth
5yrs fixed @ 2.99% - £1,516.31 /mth

I have no desire to sell this house in the medium term, should I wish to upgrade I'd just buy another and keep this one running for the kids.

A) are the above figures any good?
B) if so, which to go for?

Thanks in advance,
Donny

What fees are payable?

[DonnyMac]

£295 + I elected to pay the survey myself circ£350

Same rates for both (HSBC Premier).

[ADM06]

Aren't interest rates really low at the moment?

[Sarnie]

DonnyMac said:

£295 + I elected to pay the survey myself circ£350

Same rates for both (HSBC Premier).

You actually paid the survey fee already?

[otherman]

What can you get on variable? I don't think its worth paying a premium for 2 years because interest rates are unlikely to rise significantly in that time, so effectively your just paying to remove a small risk.
Over 5 years its harder to call, but clearly the banks think they'll rise so they've priced some risk in there. You also have to think how significant is £130 per month to you now, and how certain you are of your long term income.

[Sarnie]

otherman said:

What can you get on variable? I don't think its worth paying a premium for 2 years because interest rates are unlikely to rise significantly in that time, so effectively your just paying to remove a small risk.
Over 5 years its harder to call, but clearly the banks think they'll rise so they've priced some risk in there. You also have to think how significant is £130 per month to you now, and how certain you are of your long term income.

There is zero benefit to variable/tracker products at the moment, especially at this LTV. In most cases the fixed & variable rates are pretty much the same, and with rate rises on the horizon, it makes no sense not to fix it.

Years ago the variable rates would be circa 1% lower than fixed rates so it made sense to take the risk that rates wouldn't go up, but not currently.

[DonnyMac]

No, haven't paid a penny - have a month to decide.

Both of the above rates are less than I'm paying and if I go with either I'll pay an additional 20% monthly overpayment on top.

I had a read of some other related threads on here, what's the product where you throw the mortgage in against your other assets? I could throw £75-100k into the current account if this would make a significant difference.

There would be no adverse tax liability to do the above for me should it be advantageous.

The only way is up when it comes to interest rates, it's just when they need to stop the kettle from boiling IMO.

[TheInternet]

Sarnie said:

Years ago the variable rates would be circa 1% lower than fixed rates so it made sense to take the risk that rates wouldn't go up, but not currently.

The HSBC tracker (which I think the OP is eligible for) is 1.49% over base rate, so 1.99% currently. Doesn't beat the 2yr by 1% but does for the 5 year.

[Sarnie]

TheInternet said:

The HSBC tracker (which I think the OP is eligible for) is 1.49% over base rate, so 1.99% currently. Doesn't beat the 2yr by 1% but does for the 5 year.

Which makes it incomparable then doesn't it. You can't compare a product that has fixed costs for five years with one that doesn't.....especially with rate rates on the horizon, you can't factor in the increased costs even if they don't occur for 2-3 years. And then when you want off the tracker rate and want a fixed rate, where will the rates be at that point and the additional fees involved. When you could fix it at 2.99% right now for five years, it's a no brainer imo.

[DonnyMac]

Previously I always thought about the here and now, the difference being a couple of grand a year which is neither here nor there, but why lose it for nothing if going to 5 years.

The flip side being without a crystal ball, who knows when rates will increase and by how much, so this question is more opinion based; a 1% rise will cost me another £140 /mth or so, again, zero impact to me, but maybe £3k extra over term if I go for two years instead of five - that's the insurance for the cars for a few years - but perhaps I'd have already paid more if I went for the 5 yr option.

Either way it's no issue but I thought you chaps would unanimously say x or y.

Is there a big saving in lumping your cash in the current account against the mortgage draw-down and can you get at it quickly if required?

Thanks for taking the time to explain.

[Sarnie]

DonnyMac said:

Previously I always thought about the here and now, the difference being a couple of grand a year which is neither here nor there, but why lose it for nothing if going to 5 years.

The flip side being without a crystal ball, who knows when rates will increase and by how much, so this question is more opinion based; a 1% rise will cost me another £140 /mth or so, again, zero impact to me, but maybe £3k extra over term if I go for two years instead of five - that's the insurance for the cars for a few years - but perhaps I'd have already paid more if I went for the 5 yr option.

Either way it's no issue but I thought you chaps would unanimously say x or y.

Is there a big saving in lumping your cash in the current account against the mortgage draw-down and can you get at it quickly if required?

Thanks for taking the time to explain.

Which ever term you choose there are better products available elsewhere. 2.09% two year fixed with just a £199 fee or a 2.99% five year rate completely fee free. Feel free to PM me if you want a chat