Remortgaging - two or five year fixed rate?

[Toospotty]

What the title says basically. We’re remortgaging and are being offered both. The five year is tempting as it insulates against global shock (and let’s face it, it’s fairly scary out there) but if rates are marching downwards, will we regret our five year in two years? Both rates are below 4% but nowhere near the 3.5% forecast for the end of the year, but we need to remortgage now and not wait, so we accept that we’ll miss out on any further reductions in 2025 whatever happens.

I don't understand how you can be so certain that rates WILL go down.

As @Toospotty said, it isn't OUT OF THE QUESTION that interest rates will go down to 3.5%, but equally it isn't out of the question that they go back up to 5.5%.

In 2007-9 did anyone expect them to be cut from 5.75% to 0.5%?
In 2021-3 did anyone expect them to increase from 0.1% to 5.25%?

Interest rates can move a LOT in a short space of time, and the direction is not always expected. I'm not resurrecting the 1970s just things that happened a few years ago.

I am copying and pasting what our mortgage broker said to us as we made our decision on a new mortgage in terms of 2 or 5 years last week -

“Dear X and Y,
only you can decide on this I’m afraid because I am not able to tell you what to do! However I can say that for the amount of borrowing involved in this final home purchase most people would look for the stability that the five year rate affords. I might also remind you that a couple of years ago there was talk of interest rates falling in a couple of years and whilst we are at that point now an interest rates have indeed fallen slightly. They have not fallen to the levels expected, and they have not fallen very significantly for those with higher loan to values. Do let me know what your decision is and I can do a final rate check for you. “

Why not work out what a rate at 3.5% would mean in terms of interest if you were to chnage in two years so calculate paying 2yrs off and then whayvwoukd 3.5% look like. Then compare to your 5yr one and what is the difference in interest because if you are overpaying I bet it won't be much if you took the 5yr. So the final 3yrs of your 5yr fix won't be too far away from taking a 2yr then hopefully being on a lower rate.

That might help

What a helpful broker! I find many are very reluctant (understandably given the regulation around financial advice) to offer opinions but everything there is common sense.

We are a bit scarred as when we bought our house we'd had a pre-Liz fixed rate mortgage agreed and lost it when our first purchase fell through, ending up with a fixed tracker as the fixed rates on offer at that point were fairly punitive, and there was a sense that this might be temporary. So that worked well... - very much as your broker says.

We did 2. Very happy with that

I've done a lot of maths. ;-) That scenario is absolutely not a big difference. We'd feel it more if rates are below, say, 3% in two years, but that's only one scenario out of many and I reckon most economic forecast models wouldn't go heavy on it right now.

Just out of curiosity what are the rates like at the moment? We got one at 5.40 2 years ago with the Cumberland, we've got a 5 year fixed but curious to know if they've come down at all

The most competitive rates are now in the 3.8s - that's happened very recently. Our offers are 3.9s as we have a crap LTV.

I've had a tracker mortgage since 2023, it's due for renewal this summer and I'm planning to get another tracker. To me it's crazy to fix at all in the current climate, rates have dropped at least 3 times since I took out my mortgage.

@TennesseeStella that’s interesting. What is your tracker rate just now?

We are going for a 2 year fix.

To me, it seems pretty clear that rates are headed down.

Of course nothing is 100% but that's the way it looks

It all depends on how much you have left to pay. I am in my final 5yrs of my mortgage so I might aswell fix for 5yrs because even if rates go down the saving from the difference in interest rates is like £5pm and every yr thay passes its less and less. The 2yr fixes don't offer a better rate compared to 5yr unless I pay a product fee but that is an expensive option.

So it might not be crazy for some people to fix for 5yrs it all depends on your individual circumstances and ltv.

We’ve decided on a five year for certainty. We may end up paying a slightly higher rate but we can afford the repayments, intend to overpay, and will just not think about it now till 2030.

We are going for a tracker as I want to make overpayments.

Below 4% then I'd go for 5yrs if you can afford it.

I can tell you what I'd do, but it's also about what kind of person you are.

When we first bought and had this discussion with the broker, he said that if you've chosen a longer fix for security, see it as having paid for that security and for certainty over that set period, even if it ultimately costs you more money. If you're the sort of person who is going to be able to frame the issue like that, it makes sense to take the longer fix.

edit- just seen you've gone for the 5 years. This is also what I'd have done. It's significant that you'll just forget about it for the duration. Whereas if you know you're someone who'll keep checking and kick yourself if it turns out to have been the more expensive decision, might be different.

We are due to fix in 2 months and will go for 5 years for certainty. I am happy to pay a premium for a peace of mind.
If that helps, I have previously paid an early exit fee to take advantage of lower fixed rates and the fee wasn't actually huge. We had about 3 years left on a fix rate and "earned back" the exit fee after 8 months of lower interest. Obviously depends on the lenders T&C and your loan but that may be an option if interest rates happen to go down a lot.

We’re in this position too. We’re leaning towards a 5 year fixed (at 4.34%), so we can ride out any of the uncertainty. It’s more affordable than our current rate of 5%.