Mortgages - 5 year or 10 year fix?

[gd49]

Buying my first property very soon, trying to decide what mortgage to go for. LTV is just under 75%, the top 2 contenders are a 5 year fix at 2.89% or a 10 year fix at 3.49%. The 10 year fix would be the same as we're paying in rent now so still affordable. Myself and partner are guaranteed pay rises for next couple of years so will become more affordable over time. What are the views of PH? Obviously the 5 year fix would leave great potential for overpaying/saving/spending money on fun things, my major concern is interest rates are unlikely to be as low in 5 years time and 3.49% seems like a pretty good rate for a mortgage to me.

Other slight complication is the 10 year is only available (as far as I can tell) by going direct to the lender, which I've heard (at least from mortgage brokers!) can be quite a lot of hassle. Any thoughts gratefully received!

[Muzzer79]

gd49 said:

Other slight complication is the 10 year is only available (as far as I can tell) by going direct to the lender, which I've heard (at least from mortgage brokers!) can be quite a lot of hassle. Any thoughts gratefully received!

The broker will say that

I went direct to the lender for mine - zero problems and zero hassle.

Brokers are great for just dealing with everything and leaving you to do other things but it's certainly not complicated. I used one for my first mortgage, but only because it was free and he took his fee from the lender. Come fixed-rate renewal, he wanted £250 which was not happening.....!

You have to fill in a few forms and give some detailed info but it's really not challenging.

[Sarnie]

gd49 said:

Buying my first property very soon, trying to decide what mortgage to go for. LTV is just under 75%, the top 2 contenders are a 5 year fix at 2.89% or a 10 year fix at 3.49%. The 10 year fix would be the same as we're paying in rent now so still affordable. Myself and partner are guaranteed pay rises for next couple of years so will become more affordable over time. What are the views of PH? Obviously the 5 year fix would leave great potential for overpaying/saving/spending money on fun things, my major concern is interest rates are unlikely to be as low in 5 years time and 3.49% seems like a pretty good rate for a mortgage to me.

Other slight complication is the 10 year is only available (as far as I can tell) by going direct to the lender, which I've heard (at least from mortgage brokers!) can be quite a lot of hassle. Any thoughts gratefully received!

The level of hassle involved will correlate to how simple your circumstances are or are not, the lender involved and how much time you have to deal with the application.

So, it could be very simple and straight forward, or it may not.

How long is a piece of string?

PS: That 5yr rate isn't great...

Edited by Sarnie on Monday 2nd February 14:34

[Janosh]

We're buying at the moment and going for just 2 year fixed @ <2%.

In your position, I'd probably also go for a 2 year term and plan to remortgage and the end of the fixed period. Anything that you save during those 2 years you can take off the principle and perhaps negotiate a better rate (with a lower LTV).

Hopefully you've got a good broker who will give you the right advice for your situation.

[gibbon]

In your position I would fix cheaper for a shorter period then see where you lie in two years.

I would even consider a not fixing, and taking a super low tracker, your situation financial sounds like it will improve, and I think rates will remain low for longer than people think (though that's a risk of course), I would also be wary of fixing for such a long time in terms of the costs associated to get out. Trackers leave you far more open to roll with the punches of the economy / your financial position.

[gd49]

Thanks for the replies, no one seems to like the 10 year fix so we'll be going for the 5 year fix! We did look at shorter fixes and trackers but decided we liked the idea of knowing what we'll be paying for a while, especially as other expenses like children may be coming along in that time! My other concern with some of the shorter fixes is that some of the money saved by the cheaper rate will be lost in fees to remortgage onto another fix. We're only just under the 75% LTV and it's a big mortgage so I doubt we'd clear enough in a couple of years to get into the next band of deals.

Am aware the 5 year rate isn't the best in the market, but a combination of lowish fees, a small amount of cash back on the payments and a good SVR if for any reason we couldn't remortgage at the end of the fix made it a good deal for us.

[HenryJM]

If ten years gives you something that matters to you then go for it, everyone is different, what works for some doesn't work for others, it's personal choice.

[Sarnie]

gd49 said:

Thanks for the replies, no one seems to like the 10 year fix so we'll be going for the 5 year fix! We did look at shorter fixes and trackers but decided we liked the idea of knowing what we'll be paying for a while, especially as other expenses like children may be coming along in that time! My other concern with some of the shorter fixes is that some of the money saved by the cheaper rate will be lost in fees to remortgage onto another fix. We're only just under the 75% LTV and it's a big mortgage so I doubt we'd clear enough in a couple of years to get into the next band of deals.

Am aware the 5 year rate isn't the best in the market, but a combination of lowish fees, a small amount of cash back on the payments and a good SVR if for any reason we couldn't remortgage at the end of the fix made it a good deal for us.

Santander?

Also, don't put any weight on any lenders SVR, it's likely to be much different in 5 years.....

[kev1974]

gd49 said:

Myself and partner are guaranteed pay rises for next couple of years so will become more affordable over time.

That seems a little naive, company/government circumstances change, you can get sick / have a car accident etc, nothing is truly guaranteed. Various insurances can cover some of these unforeseen eventualities but may take quite a lot of time and effort to get them to pay out.

[HenryJM]

kev1974 said:

That seems a little naive, company/government circumstances change, you can get sick / have a car accident etc, nothing is truly guaranteed. Various insurances can cover some of these unforeseen eventualities but may take quite a lot of time and effort to get them to pay out.

But never mind, it's being so cheerful that keeps you going!

[Berz]

Sarnie said:

Santander?

Also, don't put any weight on any lenders SVR, it's likely to be much different in 5 years.....

If I'm looking at mortgages now and lender 1 has a low SVR and lender 2 has a high SVR, in 5 years when things are different would you still expect lender 1 SVR to be lower than lender 2 SVR?

I ask because I'm looking into mortgages at the moment too

[gibbon]

Berz said:

Sarnie said:

Santander?

Also, don't put any weight on any lenders SVR, it's likely to be much different in 5 years.....

If I'm looking at mortgages now and lender 1 has a low SVR and lender 2 has a high SVR, in 5 years when things are different would you still expect lender 1 SVR to be lower than lender 2 SVR?

I ask because I'm looking into mortgages at the moment too

Would you not just switch to a more competitive mortgage deal come the end of the term?

[Sarnie]

Berz said:

If I'm looking at mortgages now and lender 1 has a low SVR and lender 2 has a high SVR, in 5 years when things are different would you still expect lender 1 SVR to be lower than lender 2 SVR?

I ask because I'm looking into mortgages at the moment too

It's not a question that can be answered for another 5 years.

We are in for fairly large increments in the base rate over the next five years in my opinion, so just because one lender has an SVR of 3.99% now and another could be 5.69%, that doesn't mean that that 1.70% differential will still be the same in 5 years time.

The first lender could ramp their SVR up 0.5% with every 0.25% base rate increment.
The second lender might just increase their SVR in line with the base rate increments, if at all.

You can't second guess where any lenders SVR will be in five years time, which is why I said you should assess the product across the period of the product rather than thinking "the SVR of that product is low, I'll go with that one".

[Graham]

I fixed mine at 5% for 15 years, when it looked like rates were going to rocket, only for them to crash.....

doh...s a gamble and on the face of it I lost, but at least i can budget long term

[Berz]

gibbon said:

Berz said:

Sarnie said:

Santander?

Also, don't put any weight on any lenders SVR, it's likely to be much different in 5 years.....

If I'm looking at mortgages now and lender 1 has a low SVR and lender 2 has a high SVR, in 5 years when things are different would you still expect lender 1 SVR to be lower than lender 2 SVR?

I ask because I'm looking into mortgages at the moment too

Would you not just switch to a more competitive mortgage deal come the end of the term?

Wouldn't you incur fees for switching? It's all a gamble I guess. Just have to work with what you know at the time you're applying/renewing.

[Berz]

Sarnie said:

assess the product across the period of the product rather than thinking "the SVR of that product is low, I'll go with that one".

Ok, so just to confirm, is there anything other than APR that I should be looking at when assessing the product across the period of the product (for comparing similar products)?

We've just been booked in at a local mortgage advisor. Would you be willing to share with me any horrible awkward questions that I should be asking that will 'test' her?

[gibbon]

Berz said:

Wouldn't you incur fees for switching? It's all a gamble I guess. Just have to work with what you know at the time you're applying/renewing.

True, to be honest I have a fairly large mortgage (in money terms, not equity) so the fees are often insignificant compared to the potential interest saved, but a valid point if you have a smaller mortgage.

[Sarnie]

Berz said:

Ok, so just to confirm, is there anything other than APR that I should be looking at when assessing the product across the period of the product (for comparing similar products)?

We've just been booked in at a local mortgage advisor. Would you be willing to share with me any horrible awkward questions that I should be asking that will 'test' her?

Add up all the fees, along with all of the payments to give you a total payable

[Jakg]

Berz said:

Ok, so just to confirm, is there anything other than APR that I should be looking at when assessing the product across the period of the product (for comparing similar products)?

We've just been booked in at a local mortgage advisor. Would you be willing to share with me any horrible awkward questions that I should be asking that will 'test' her?

The fees are also important - on a 5 year fix at lower loan values you may find that a higher interest rate with a lower free is cheaper overall. Really you want to be working out how much equity you'll have at the end and how much it'll cost you.

I'd focus on the interest rate in the fixed period - mortgage KFI's include an additional APR which is across the *whole term* of the loan (e.g. 5 years at fixed + 20 years at SVR). No-one goes for a fixed product to pay the SVR, no-one (should!) pay the SVR for 20 years and of course it'll change massively over that time - so it's pointless.

http://www.moneysavingexpert.com/mortgages/best-mo...

[grahamm]

If you take the lower 5 year rate you will have more options after 5 years and will owe less than if you had taken the 10 year fixed rate, due to the same payments repaying more of the capital. This is something that lenders seem to forget to point out in my experience.