How long should we fix our mortgage for?

[Lcy]

Anyone know anything about this? We have been offered a 75% mortgage at 4.99 for 5 years or 4.09 for 3 years. How long is it best to fix for?

It depends entirely on your circumstances and your attitude to risk. If you can afford to fix for 5 years at 4.99% and it would give you peace of mind and enable you to budget that might be the best option. If you think interest rates will be significantly higher by 2014 but would like to pay less short-term and take a view nearer the time, then 3 years at 4.09% is also a good deal.

I fixed at 5.99% for 5 years back in 2008 just before interest rates dropped like a lead balloon because I fancied the peace of mind route ... and I would have gone onto the standard variable rate if I hadn't bothered .... so I'm rubbish at making this decision clearly and no use to you whatsoever :)

Yes last time we fixed we were offered a tracker that tracks below the base rate and we said no wanted to fix at 5.7 - the rates dropped the next month!

So difficult

We're just fixing at 2.99% for 2 years and just shop around every couple of years to get the best deal.

5 years.

One thing as well that I hadn't realised that when we came off our fixed rate we changed compnay to get another fixed rate as the variable rate on the original mortgage was really high. There was arrangment fees for a lot of the mortgages - anywhere up to 1k.

Interest rates are definetly going to go up. Though I'm suprised mortgage rates are so high - they weren't so high 3 years ago when interest rates were actually higher. Bloody banks.

Lcy: Ouch! That tracker below the base rate would probably have meant no mortgage interest to be paid over the last year or so!

As with all financial products, there's pros and cons, and no-one knows the definitive answer to which is the best, as it all depends on what you expect will happen in the future.

Generally, if your finances are running tight (e.g. a small margin between income and outgoings, few savings, few other assets), I suggest fixing as then you have the peace of mind. But in the long-run (decades?) fixing usually ends up more expensive than tracker as you're paying for that peace of mind.

3-year fixed at 4.09% looks good (assuming no other remortgage fees), 5-year at 5% seems a bit steep.

We think we are about to go for a 3 year fix. In some ways I would prefer to go for a 5 year fix, but the rates on offer are so unattractive that I really don't think it is worth it.

A fixed rate makes it easier to budget - but I agree its tough when the variable rate has been low these past few years to be stuck on a fix (I am-sob). However, my first mortgage was back in the early 90's and I was on a variable rate - rates went up to 13% and my mortgage payment tripled over the course of a year and a half - lots of people had to default and lost their houses and the house market collapsed with lots of people trapped in negative equity. It was really, really tough for me too - so I tend to like the peace of mind of a fix.

Interest rates have been low for awhile now and inflation is rising - so there will be increasing pressure on the bank of England to raise them. there is no right answer - do what feels comfortable to you

I guess my concern is that at the end of three years interest rates are sky high and we have to fix at 12% or something hideous like that. But I guess that could happen at the end of the 5 year deal as well. As you can tell I am very risk averse when it comes to money but in 3-5 years the mortgage is likely to be a much smaller percent of our earnings than now so I guess we will be in a better position if rates are high.

Each mortgage costs £1000 but the 3 year rate will save us £800 a year.

I would go for 5 years. You might come out when rates are just at height...

My suggestion would be (after my bad experience with fixing at a bad time) to go with either of the deals being offered but read the small print regarding overpayments. Most fixed deals have penalties for early redemption but some lenders will let you pay back a percentage of the capital, for example, without penalty.

The most you can get on cash savings at the moment is in the 3% - 3.5%. Mortgage interest at 4.09% - 4.99% is higher and, with inflation at 4.5%+ besides it makes little sense to have large amounts of cash on deposit (beyond a sensible rainy-day fund). So if you make a concerted effort to pay off some of the capital during the 3 or 5 year period that you have the fixed rate mortgage, by the time it ends your income should have risen and, even if rates are very high, you'll only be financing a much smaller amount.

Thanks such good advice all of you. Will def fix and prob for 5 years

Thanks for all the advice. We fixed on a 3 year at 4.09. The difference in interest rate means that on a 20 year term we pay more off by the end of the 3 year fix than on the 5 year fix at 4.99. We will also try and pay off a bit extra a month so we are in a better position if interest rates rocket. At least I now have 3 years peace of mind and we will not have nursery fees when it ends so more cash if we have to pay more.

Thanks again