To not know how to manage mortgage

[WhiteButtonMoon]

I am absolutely not good with financial understanding. I wish I was better, but I'm not, so I'd really appreciate some advice.
My 5 year fixed product has just ended. We were on 1.89%.
Gone on to variable of 8.25% now.
I want to fix, and am being quoted 4.33% for a 5 year fix, or 4.53% for a 2 year fix.
No product fees on either.
15 years of repayment left.
We will stay with the same provider as ivd entered all our details in to MSE and looking at all the deals on offer, our current provider is on a par with them all.
My big headache is - fix for 5 years or 2 years?
Currently giving myself a hard time as 2 weeks ago I was offered 3.99% but I didn't accept it as the BoE was expected to drop it's base rate, which I waited for and it did, and I thought that would reduce the mortgage rates but the opposite has happened and 2 weeks later it's increased to 4.33%. This is making me panic - that it's risen that much in 2 weeks.
I'm caught between a rock and a hard place. If I fix for 5 years I will be absolutely hammering myself if rates drop over the next year or two, because every little penny saved each month makes a massive deal to us.
Meanwhile, if I fix for 2 years and at the end rates have increased, I will hammer myself for that too, again, because even a small amount of money each month makes a massive difference to us.
I know none of us has a crystal ball, but this is so hard.
We are really struggling every month due to COL inflation, we're honestly really impacted by rises in fuel, groceries, utilities, etc.
2 young DC of 11 and 10.
We're older parents aged 50 and didn't expect to be in such financial challenges at this age when I was a younger adult.
We're middle earners public sector. No pay rise for 10 years whilst COL has risen exponentially has made us worse off in real terms than we were a decade ago and it's reeeeeally depressing the hell out of me. Thought we'd be financially comfortable by now, at least. But we're even worse off.
So that's why I'm in a muddle about how long to fix for.
Keep thinking the USA election will unsettle the worldwide economy and affect interest rates, but maybe I'm overthinking things?
Thanks for any advice anyone with financial skills could give!

No advice to give and sorry that you are going through that. I manage the money in the house and honestly, it is depressing sometimes. So I feel you. We’re due to fix again about a year from now and are currently on a 2 year fix. I think I would possibly still choose to 2 year fix again if things hadn’t come down a lot still. I know they won’t ever go back to very low levels but from everything I’ve read I am encouraged the general trajectory is down. But you never know and you can’t be hard on yourself if you pick the “wrong one”.

No one here can really advise you to fix for 2 or 5 years. Your mortgage company could probably provide advice from a qualified professional. The things they will look at is do you plan to move house, will you be receiving any lump sums soon, if so maybe a 2 year might be better so you don't have early repayment fees if you decide to pay off. As for what will happen to interest rates no one can predict this. I chose a 5 year fix in your position simply as it was cheaper and I wanted to know what my payments would be for sure for the next five years.

I fixed mine for two as the difference between 2 and 5 wasn’t a good enough deal to think 5 is worth while, I’d say speak to a mortgage broker they’re often free.
either way you need to fix as paying double on the variable rate is silly

In your shoes I would do the 5 year fix for certainty.
but check the rates again in 2 or 3 years and if they have dropped significantly then pay any repayment fee (depending on amount) and consider remortgaging at that time. Obviously do your sums first to see if it is worth it!

I would do 2 years at the moment and we do fix 5 years.

Can you afford the 5 year fix price for the next 5 years? It's nit wildly different to the 2 year fix but will give you the security of knowing what your bills will be. I don't think with the global political landscape at present that rates will come down by much, if at all over the next 2 years so I'd go for the 5 year fix. Then just stop looking at rates and torturing yourself about it. You can't ever predict the changes but it's still lower than it has been in the past.

This is really about your own personal attitude to risk. Some people would choose to know what their payments will be for five years and some take the two year risk if its a bit cheaper. Thats it really, no-one really knows what will happen with rates.

Choose and then don’t beat yourself up if you then think you chose the ‘wrong’ one.

What is the difference between them £ per month? Have you not been getting inflationary pay rises?

I am remortgaging in Feb. After everything last couple of years I decided to lock in a rate early and change if something better came along. I have decided to go for 5 year. I got a 3.99 fee free rate a couple of weeks ago and like you say I also expected them to drop and wondered why I was bothering.

I currently feel they are maybe not going to go down as much as/ as quick as we would like to think so as I have a daughter starting Uni next year I just want the certainty.

Who knows though - I am still kicking myself for not locking in at 10 years when I got my mortgage last time as I did consider it.

Forget the past. The biggest mistake you could make now would be staying on the 8% because you're splitting hairs on 4%.

Can you remortgage for 5 years on a longer term (because it's the lower rate) to reduce your monthly repayments, but commit to yourselves that you will overpay.

Also, work out what your ERC is. If rates come down significantly then you could pay that to remortgage at a lower rate. You'd probably need to pay a product fee too. But it might be worth it for the peace of mind that your monthly repayments definitely won't go UP in 2 years

No one can predict the future, but 5 year rates will have “priced in” any anticipated movements.

if you can afford the 5 year and prefer certainty then lock it in and don’t look at mortgage rates for another 5 years. My lender has 5 years cheaper than 2 so to me it’s a no brainer.

whatever you do, do make a choice as that 8% SVR will be painful.

I would go for 2 years as a personal choice, but the most important thing is to decide quickly and get it locked in- every week that you are on that large variable rate, it is costing you multiple months of what the difference is between the 2 year or 5 year rate. Hope that makes sense.

We had a very similar situation in August, where there were only 2 weeks left before switching the variable rate. I had a call with L&C, and they basically said- the difference in that is minimal, go fee free with your lender for whichever you want, just do it quickly. Every month that we were on the variable would have cost about an extra £800 on top of a mortgage rate, while the difference between 2 & 5 year fixes was about £50 a month for us, so that time difference of going on the variable rate for one month would be over a years worth of the difference in payment.

We opted for a 2 year tracker in the end.

I'd go for a 5 year fix personally. The recent budget and the new government is likely to see inflation rise given the amount of money they are planning to spend into the economy - such a large injection of taxpayers money is likely to increase inflation and subsequently interest rates. Don't just take my word for it, have a look around the world.

In your position as public sector workers you're hopefully going to benefit from an increase in salary and maintain job security, the budget and government plans don't include significant cost savings in the medium term so I'd take a long term view, and as a previous poster has said you can always exit the deal and take a penalty if rates do drop, but I think its unlikely to drop to an extent that will cause you too much anxiety.

Do you have any savings at all? Would not be an option to pay this to your mortgage if it would lower your monthly payment?

Or maybe lengthen your term for the next few years? If the interest rates drop over the fixed term you could then readjust the term back down.

I would speak to a mortgage advisor first before you do anything.

I will be in the same position in two years when my fixed term comes to an end. I have started to pay a little extra each month. It's not much but I am hoping it makes a difference as I will never have a rate as low as I have now and know my payments will rise in 2 years.

One other thing to note is that you can apply for a mortgage and then apply again when/if rates drop again. You can do this up to six months in advance. Obviously no use this time, but worth knowing you can do a bit of hedging in 2/5 years' time.

From what you've posted, you seem to have a pretty good understanding of finance but a lack of confidence to make a decision.
Is it partly because you feel solely responsible for it? I tend to manage the financial stuff in our house, but always run big stuff like this past my OH in part so they can't say they weren't consulted!
So, what does your OH say about it?

TBH, in your situation, and given the fact that you are getting in a bit of a lather about it, I would say that stability is actually more important than the potential for saving a few £ so I would go for the 5 years then you have certainty for a decent period and you can look at getting a better paid job.
It seems unlikely that rates will drop significantly now and could well increase, given the instability in local and world politics.

The most important thing is to choose something other than the SVR at over 8%.

As someone who has paid a mortgage for 23 years you need to look at the fact that your attitude is only negative. You would be pissed if you took the 5 year fixed and the rates dropped but don't feel elated that you were on 1.89% when a lot of people were on 5% plus.

We have always looked at the fixed rates as to where we are in life, we took our last 5 year fixed to end with when Ds2 finishes university. We prefer a guaranteed mortgage amount for a number of years so we know exactly what we will be paying out. A 5 year fixed will take you until your 11 year old is 16. Can you afford the 5 year fixed? If yes I would be tempted to go for that.

I agree you sound financially savvy but you cannot live in a perpetual state of kicking yourself if rates drop whilst locked into a fixed. You make the decision based on the information you have at the time. I have never cared about beating the market, I feel much more secure knowing my fixed rate mortgage payment is X and that won't change for X number of years.

Is so personal and down to attitude to risk. We never fixed. When we took out our first mortgage we did calculations based on 5%, rates then plummeted for almost two decades. Tracker now at 5.1 for the final stretch of payments but we've saved so much on NOT fixing and it's still what we predicted. Anything around 4 is good.

If you have no intention of moving I’d fix for five years. This government is going to be an absolute shit show. Things will be very bad by this time next year.

You can’t predict rates, nobody can because something unexpected can happen (like Ukraine and gas prices) that nobody saw with certainty.

I agree with other posters that you are asking yourself the wrong question. What you need to ask yourself is:

Given that even professionals struggle to anticipate all rates movement which option gives me the most peace of mind. Am I comfortable with taking a risk that in 2 years time rates might have moved against me or would I like the longer term certainty of fixing my costs for 5 years even if I pay a premium.

This is a very individual decision dependent on your circumstances eg if you have a lot of new costs coming up in the next year or two maybe a longer fix is better.

If you were in my situation where I am nearer the end of my mortgage with a low LTV at 2 year fix makes more sense because I want a bit more flexibility and if rates were a bit higher it wouldn’t have a substantial impact because my mortgage is small now and payments are a relatively small proportion of my income.

You need to stop chasing rates and focus on what best meets your needs.

I'd like the security of 5 years. This will see you through the secondary school years and onto the next phase of life. You know you can afford these payments.

Id fix for 5 then forget it. Dont tie yourself in knots, life is complicated enough.

No one can predict rates with any certainty so pick what you are comfortable with and make peace with it.

FWIW based on what we know today (the budget NI rises, fuel price cap increases, etc) I suspect inflation will start ticking up again so interest rates won't be coming down anywhere near as quickly as was predicted. However, that's a guess and who knows what the next year will bring.

Remortgage is stressful for you, so do you want to do this again in 2 years, or 5 years? I go for 5 as I like knowing what my costs will be for a longer time, but it does mean I am paying a little more at the moment. Also consider what the renewal fees are, as you will pay more if you renew more regularly.

I would go for 2 year fix.

Whatever you choose make a diary alert 6 months before the fix ends. You will need to check with your provider but usually you can negotiate & get a new fix in place before the end of your current mortgage. Thus will avoid finding yourself at 8%/high rates again.

My fix ends in 2 years & im currently on a low rate. I'm putting aside all I can to get the mortgage down as much as I can for when I come to remortgage. I don't think I will be getting this low rate again.

To some extent you just have to make peace with the decision you do make .

Think practically too?

(Eg we made sure we fixed till children were at the end of the expensive childcare years so our expenses were predictable)

What's right for you won't be right for someone else