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2 or 5 year fixed rate?

(15 Posts)
Honey1975 Tue 07-Feb-17 20:44:30

We're looking at mortgage options for moving. They've offered us a 2 year & 5 year fixed rate option. How did you decide what to go with? I like the security of the 5 year but the 2 year is £70 less per month and so DH thinks this would be better.

Mum2jenny Tue 07-Feb-17 20:47:27

I'd guess interest rates must rise shortly so I'd go for the 5 year fix, but I've made pretty bad decisions in the past, so not sure I'd follow my own advice.

wowfudge Tue 07-Feb-17 20:53:15

In two years we will be leaving the EU, and between now and then all sorts could happen. I'd go for a 5 year fix for the certainty of repayments not rising when other things are almost certainly going to. You will still be getting some of the lowest interest rates in memory.

MongerTruffle Tue 07-Feb-17 20:57:22

I'd go for the 5 year fixed rate given that interest rates will almost certainly rise after Brexit.

EssieTregowan Tue 07-Feb-17 20:58:20

Rates can't get much lower so I'd definitely go for 5years.

PurpleDaisies Tue 07-Feb-17 20:58:46

We fixed for five years a couple of months ago. Even if it costs us more (which I don't think it will) it's worth it to know exactly what our mortgage will be for the next five years so we can plan.

PassTheCremeEggs Tue 07-Feb-17 21:05:14

We recently fixed for five. Two years from now we'll be about to leave the EU - I wouldn't want to be at the mercy of a remortgaging application when rates could be doing anything. Hopefully in five years things will have calmed down a bit

Notyetthere Tue 07-Feb-17 21:34:26

Marking place! We are remortgaging next month and we are also looking into this. We are currently with Nationwide and plan to take advantage of their switching service which seems to have competitive rates and we can switch 3months early.

If we go for the 3yr fix, it would cost us £24 more per month compared to a 2 yr fix. It would cost us £55 more per month for the 5yr fix.

Personally I doubt brexit lead to increase interest rates. That surely would hurt an already delicate economy? The government would like to us to continue spending into the economy thus increasing interest rates would be doing the opposite? At worst I suspect the interest rates will not go any lower but will stay the same.

I could be wrong though.

I would make a decision based on where you think you and your family will be in 2 yrs time or 5 yrs. While I would like to take the 2yr fix, I reckon our circumstances will have changed. In 2yrs time, we will have a dc(or two if DH gets his way!), DH will probably be working part time and I doubt my salary will go up by much in that time meaning that we might struggle to meet affordability at that time.

After all of the above I still don't know what will do. £55 more per month, over 2yrs that would be over £1300 which we could just use to overpay the mortgage instead. It is a lot of money. £55 covers a weeks groceries in our household. Oh decisions, decisions.

pdunne Wed 08-Feb-17 00:24:49

Worth noting that if you're remortgaging the bank doesn't have to keep its rate at the same difference above the bank of England base rate, do even if that isn't raised the actual rates on offer could go up.

pdunne Wed 08-Feb-17 00:27:39

Another way to look at it is that we are looking at some of the lowest rates in history. If the rate goes up by even 1% for the three years after your two year fix that would likely wipe out any saving you made. There isn't really room for rates to fall, but they can go up a long way.

TurquoiseDress Wed 08-Feb-17 10:57:34

Following this thread with interest.

We are at the point of taking out a mortgage (currently renting, chain free)

Looking at going for 2 year fixed, aim to make lots of overpayments

But now wondering if we are leaving ourselves exposed for 2 years down the line

By then we should (hopefully) have baby number 2, my salary will definitely have gone up by quite a bit

Hmmm it's a tricky one...I also feel that I tend to make relatively shit financial decisions, but who knows what the future will bring.

Well, actually, a rise in interest rates is a question of when, not if

Stokey Wed 08-Feb-17 14:30:31

Hmmm This is interesting - we fixed for 5 years in 2012 thinking that rates could only go up - they haven't - and that we needed the stability.

We would have been better off having the flexibility to change in hindsight. When we remortgage later this year, we can add £50k to our mortgage and still have lower monthly payments than we have for the last 5 years. I think we'll probably only go for two years this time so that we have the flexibility to get out of it.

Notyetthere Wed 08-Feb-17 15:09:15

Thinking further on this, inflation is expected to rise over the next few quarters meaning that consumer spending will most slow down as a result. The root cause not being price rises but due to Brexit, the pound's value has fallen. I don't see the BOE then increasing interest rates to further slow down consumer spending.

At worst, I envisage the base rate staying at the same level for a while. Nobody had predicted interest rates staying 0.5% for 6 yrs last time. We don't know how long they will stay at 0.25% but I can only read other signs to give me some sort of guidance of where I think rates will go.

But then even if rates go up, we are currently on a very high rate that we shall only return to the payment we are currently making.

Notyetthere Wed 08-Feb-17 15:31:17

Stokey same here - we fixed for 4 yrs in 2013 and a few months later interest rates dropped through the floor and we were trapped with a massive ERC. At the time we had not fully appreciated what the economy was doing, inflation and other signs that would have given us an indication of might happens.

We wanted the peace of mind and I guess we got it. Peace of mind costs money, kind of like insurance, it costs money. Dh and I are definitely thinking 2 yr fix.

difficultyear Wed 08-Feb-17 16:43:48

we took out a 2 year fix.

We want to be able to remortgage or move in 2 years without having to pay a hefty fee.

Had the mistake of taking out a 5 year fix previously and then circumstances changed, had to close the mortgage account and was hit with £9k in additional closure fees.

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