2 year or 5 year fix mortgage?

[j4ck100]

Hi all,

First time buyer here, I've been offered either a 2 year fix @ 1.45% or a 5 year fix at 2.08%.

If it weren't for the fees upon remortgaging I'd go for 2 years then hope for a similar rate again in 2 years, but I think that the average £995 fees for remortgaging, coupled with in my guess 2-3 BOE hikes between now and 2023, means that I'm siding with locking in for 5 years now.

Appreciate your thoughts.

J

[CaptainSlow]

anonymous said:

[redacted]

Lenders will either match fund against the expected term and attrition profile of their portfolio either through the markets directly, or in the case of large deposit funders, through hedging products, or launch a RMBS security. Lenders don't like interest rate risk and will pay others to take it.

As for the OP, what size in the loan?

[The Selfish Gene]

have you done a calc of how much extra the 5 year % will cost you?

I recently did exactly this, and it wasn't loads over the 5 years versus the assurance of knowing your exact outgoings for a 5 year term. Which is excellent.

Also - my chap advised me that with Brexit happening, maybe protect against whichever way the interest rates go for a few years afterwards by going to 5 years fixed.

I thought it was a good idea.

[covmutley]

Completed on our 5 year fix re-mortgage yesterday.

My thoughts were the same as yours. 5 years piece of mind and an interest rise looks more likely than a further reduction.

[MrNoisy]

Final strokes of working towards exchange, opted for a 5 year fix, very little difference in the 2 or 5 option.

[The Selfish Gene]

i can't remember the exact numbers (it was November) but the extra percentage worked out at a couple of grand over the extra 3 years............ small'ish price to pay for certainty in an uncertain period. Also take at least 1k of fees out of that in another 2 years - it was next to nothing really.

[Yipper]

Certainty is always king.

In America, 25-year fixes are common.

Take the 5-year fix and overpay as much as humanly possible every month.

[The Selfish Gene]

Yipper said:

Certainty is always king.

In America, 25-year fixes are common.

Take the 5-year fix and overpay as much as humanly possible every month.

what's your view on a mortgage being the cheapest money you'll ever borrow - and thus not paying it off faster?

My brain hasn't really got around that as a concept...........

[gibbon]

Yipper said:

Certainty is always king.

In America, 25-year fixes are common.

Take the 5-year fix and overpay as much as humanly possible every month.

Or borrow money below inflation and let time erode the debt value away whilst investing in increasing assets?

I know which i've done.

[Yipper]

The Selfish Gene said:

Yipper said:

Certainty is always king.

In America, 25-year fixes are common.

Take the 5-year fix and overpay as much as humanly possible every month.

what's your view on a mortgage being the cheapest money you'll ever borrow - and thus not paying it off faster?

My brain hasn't really got around that as a concept...........

Debt is debt. The sooner you clear it, the less you pay.

[The Selfish Gene]

Yipper said:

Debt is debt. The sooner you clear it, the less you pay.

indeed - but should you have any.............the mortgage is the best one to have?

[j4ck100]

CaptainSlow said:

Lenders will either match fund against the expected term and attrition profile of their portfolio either through the markets directly, or in the case of large deposit funders, through hedging products, or launch a RMBS security. Lenders don't like interest rate risk and will pay others to take it.

As for the OP, what size in the loan?

£100k

[gibbon]

Yipper said:

Debt is debt. The sooner you clear it, the less you pay.

Its still debt, however if you borrow at below inflation then you dont pay less time adjusted by keeping the loan longer.

[BoRED S2upid]

5 years for me. However there isn’t always a fee for a remortgage we stayed with the same provider when we went from one fixed rate to this 5 year fix and no fee they just happened to offer the best rate at that time as well.

[ZOLLAR]

The Selfish Gene said:

have you done a calc of how much extra the 5 year % will cost you?

I recently did exactly this, and it wasn't loads over the 5 years versus the assurance of knowing your exact outgoings for a 5 year term. Which is excellent.

Also - my chap advised me that with Brexit happening, maybe protect against whichever way the interest rates go for a few years afterwards by going to 5 years fixed.

I thought it was a good idea.

This was my train of thought, remortgaged in December.
Took 5 year fixed rate.

Getting married in 2020 and Brexit the year before, I wanted a bit of certainty over what I was paying

[Yipper]

The Selfish Gene said:

Yipper said:

Debt is debt. The sooner you clear it, the less you pay.

indeed - but should you have any.............the mortgage is the best one to have?

It usually comes down to the "total" interest rate (after adding / subtracting fees, taxes, etc.) and total cost.

Saw a personal loan recently at 3.1% fixed for 7 years. And a mortgage at 3.5% fixed for 5 years. In that case, the personal loan would have been a better (cheaper) choice.

The savings made by overpaying any debt can be huge. Someone with a £500k 25y mortgage at 4% overpaying by £1000 a month will save about £125k in interest and 10 years in time.

[j4ck100]

gibbon said:

Or borrow money below inflation and let time erode the debt value away whilst investing in increasing assets?

I know which i've done.

This works in a rising market but unless you're talking about investment grade bonds or treasuries it's a risky proposition.

[sidicks]

Yipper said:

It usually comes down to the "total" interest rate (after adding / subtracting fees, taxes, etc.) and total cost.

Saw a personal loan recently at 3.1% fixed for 7 years. And a mortgage at 3.5% fixed for 5 years. In that case, the personal loan would have been a better (cheaper) choice.

The savings made by overpaying any debt can be huge. Someone with a £500k 25y mortgage at 4% overpaying by £1000 a month will save about £125k in interest and 10 years in time.

But the point being made is that, instead of paying down that debt, the money could invested and achieving higher returns, making you better overall.

Of course you’d need to adjust the investment returns for tax and risk, but with interest rates so low then this is a viable option, although economics are often not the dole deciding factor and there is a lot to be said for not having a mortgage to worry about.

[CaptainSensib1e]

gibbon said:

Or borrow money below inflation and let time erode the debt value away whilst investing in increasing assets?

I know which i've done.

Same here, never understood the obsession with paying off mortgages in this country, particualrly ewith interest rates so low relative to inflation. I'd much rather have £250k in assets and a £250k mortage, than no assets and no mortgage.

[rsbmw]

CaptainSensib1e said:

gibbon said:

Or borrow money below inflation and let time erode the debt value away whilst investing in increasing assets?

I know which i've done.

Same here, never understood the obsession with paying off mortgages in this country, particualrly ewith interest rates so low relative to inflation. I'd much rather have £250k in assets and a £250k mortage, than no assets and no mortgage.

Absolutely, holding the money elsewhere achieving good returns still lets you pay off the mortgage at the same or even faster rate as you can dump the funds straight into mortgage when(if) the interest balance tips the other way, whilst also leaving the funds available for any other requirements that may come along.

Also I wouldn't fix unless you really couldn't afford an interest rate rise at all (at that point, can you even afford the mortgage?) - history shows lifetime trackers/variable cost less in the long run. Banks offer fixes with associated fees for a reason.