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AIBU?

To pay higher interest rates for peace of mind?

33 replies

viktoria · 09/08/2017 10:40

I am worried about what is going to happen to the UK economy over the next couple of years.
We're about to re-mortgage and are considering a 5 year fix. We have always fixed our mortgage rates and have always ended up over paying. Literally every time we fixed the rates, interest rates continued to drop.
So, of course nobody knows what's round the corner, but after years of thinking "surely rates can't go only one way and that's up" what are your thoughts?
Fixing for 5 years and potentially being locked in a higher rate, but peace of mind
Or
Fixing for 2 years, paying about £120 less per month and hoping for the best?

OP posts:

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SquashedInTight · 09/08/2017 10:42

We have just fixed for 5 years for the peace of mind.

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StormTreader · 09/08/2017 10:45

I always fix.

That said, they cant put up interest rates too fast or thousands of people would lose their homes.

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ThatsNotMyToddler · 09/08/2017 10:46

Well they can't go down much from where they are now.

Can't predict the future obviously but I suspect as the pound falls (brexit) interest rates will start to climb. We will have more financial uncertainty in general and you may well be glad of a fixed mortgage payment. 5 year fix is a good option imo

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squishysquirmy · 09/08/2017 10:46

That sounds very sensible.
We recently went onto a 2 year fixed rate, but I think what you are doing makes sense. We have also checked that we will still be OK when rates go up, and are going to try to make some over payments when we can. Hopefully, rates will rise slowly and gradually at first but it is going to be a shock to many unfortunately.

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Witsender · 09/08/2017 10:46

They can't go down and can only go up. Probably not fast and high though.

We are in the same dilemma.

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chickenowner · 09/08/2017 10:48

I've been paying off extra each month on my rental house while interest rates are so low.

That way, when rates go up I will only have a small amount left to pay and therefore the interest rate won't affect my monthly payments very much.

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regularbutpanickingabit · 09/08/2017 10:48

We were bitten with a fix then interest rates falling and then went on to a tracker for a few years that worked well. It was up for renewal a few months ago and we decided to go with a 5 year fix for the same reasons. The relief is huge to be honest.

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HurryUpAndWait · 09/08/2017 10:48

That depends on the rate you're fixing it at.

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squishysquirmy · 09/08/2017 10:48

I would say that out of the two options you gave, the first is good, but the second could be OK IF that £120 saved per month was spent on over payments.

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amicissimma · 09/08/2017 10:50

This reply has been deleted

Message withdrawn at poster's request.

BarbaraofSeville · 09/08/2017 10:52

It's really difficult. We're the opposite to you, have never fixed, so have always been better off. But the way interest rates have behaved in the last 10 years has been unusual.

I don't see interest rates going up much in the short/medium term. There's too much personal and business debt and it would fuck the economy.

One thing you need to consider is the impact of fees, some mortgages have huge fees, so they charge a lower interest rate to make it look cheaper. Changing every 2 years is likely to cost more in fees. Divide the fee by 24/60 months to see the effective cost per month.

There are advantages and disadvantages of short and long term fixes and no-one knows what the right decision will be and the other thing is that, the longer the fix, the more chance that something will change in your life that makes you want to get out of it (another DC, job change, inheritence, bereavement, divorce etc) and getting out of a fixed rate can be expensive.

In your circumstances, I would probably take the 2 year fix, but save the £120 in a savings account earmarked for the sole purpose of being available should the next mortgage in 2 years time if it is more expensive. If it is, you have money to help you pay it, If it isn't you have nearly £3k of money to spend or overpay the mortgage with.

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BarbaraofSeville · 09/08/2017 10:53

Cross posted with a couple of others while I was waffling.

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PurpleMinionMummy · 09/08/2017 10:53

We did a two year fix (although it was a year ago now). I hope rates will still be low next year. After that I might tie in for longer. I'm not sure what I would opt for if I was choosing right now which is not much help

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megletthesecond · 09/08/2017 10:56

Yanbu. I've always fixed and overpaid. Makes budgeting so much easier.

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DJBaggySmalls · 09/08/2017 10:56

YANBU. Its got nothing to do with the actual interest rates and everything to do with attitude.
If you are the sort of person that loses sleep over missing a bargain, dont opt for fixed interest rates. If you lose out it will eat you up.
If you can accept the 'risk' for what it is, then do it.

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HRHPrincessMegan · 09/08/2017 11:02

We've been rolling over on 2 year fixed rates for the past 4 years and will probably continue to do so. The gilt market is pricing 3 25bps increases over the next 10 years so unlikely that there'll be a dramatic increase anytime soon. Also given the amount of uncertainty, I would think the treasury prefers a weaker pound as a means of stimulating exports and FDI. Do work out the difference between the higher monthly payment and paying 2 set of mortgage fees though - I would have though the monthly saving is greater but you never know.

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StormTreader · 09/08/2017 11:28

Oh I love the overpaying way of doing it if you can - means that if I really need the cash this month I can just not overpay, and Nationwide keep the overpayments in a separate pot of cash that I can use to pay a few months of payments if I get made redundant. (been doing it for about 5 years)

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viktoria · 09/08/2017 11:32

Thanks everybody. Really helpful/interesting to read the replies.
Yes, I agree. If interest rates were to go up substantially it would make it very difficult for a lot of people.
5 year fix is on 2.6% no fee and 2 year fix is on 2.1% and also no fee.

We are currently overpaying a little bit - as and when we can.

I think I tend to want to go with the 5 year fix. ( but great point about changes in circumstances, hadn't thought about that - I will need to check about penalty fees).

OP posts:

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Firesuit · 09/08/2017 12:33

I think you should expect on average to pay more if you go for fixes. A fixed rate provides insurance, and insurance isn't free.

In general, you should insure against expenses you are unlikely to be available to afford, and not insure against expenses you could meet out of income/savings.

So the question should not be "what will happen to interest rates", which should be regarded as unknowable anyway, but "could I cope if they go up." If you can't cope, you need insurance. If you can fairly easily, insurance might be a waste of money.

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Tazerface · 09/08/2017 12:51

I also go for fixed rates - my first mortgage was taken out right before the market crashed so we would have benefited from the drop. But - I saw how quickly it was reduced, I don't want to test how quickly it will go up!

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crashandburnt · 09/08/2017 13:06

You have to do what is right for you. Personally inthinknthatbrates are likely to stay low for the next couple of years at least. Also, the market is priced as though base rate was around 2% low rate = high fee. I'm only paying 0.50 over base on a lifetime deal and I'm not locked in so I'm going to stick with what I have.

Given that your 5 year fix is not that much higher than a 2 year fix I can see the attractiveness. However 5 years go fast and you may find that is when they start accelerating. In those circumstances you would have been better off taking the low rate now and overpaying.

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HurryUpAndWait · 09/08/2017 14:22

@crashandburnt

who is that with? We were going to buy a couple of properties outright (I know gen. a little higher for BTL) but you'd be better off on a mortgage and investing the money elsewhere.

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burninghigh · 18/08/2017 07:22

It's with HSBC but is a historic rate not currently available.

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Gizlotsmum · 18/08/2017 07:25

We have chosen 5 yr fix as for us it was only £60 a month more

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calmanban · 18/08/2017 07:33

Are you shopping around? We had a similar choice recently and fixed for 5 years. The rates we were offered were
2yr no fee 1.69
3yr no fee 1.89
5yr no fee 2.14
I think the difference was around 20 a month between the 2 and the 5 so we went for the 5. Although we were reducing our term so we were going to pay 1000 a month so for the 5yr we are 2 months longer on the mortgage. We will reduce the term again in the future. We will be paid off in the next 8-10 years so I liked a long fix. Its inevitable rates will go up at some point... this is a historical low.... so I would honestly throw as much at reducing whilst it's so so cheap. Average mortgage rates historically are around 6-7% so 2% is really low.
My worry is there are so many with mortgages started over the last ten years or so who don't recognise what a 'normal ' interest rate looks like... they are in for a real shock once things start climbing.