New mortgage 5 or 10 year term

[Vivi0120]

So we are remortgaging at the moment and our % is doubling which is a huge shock but now I'm wondering whether to go 5 or 10 years I don't want to be in this position in another 5 years but what if percentages go down? The new mortgage is at 4% ... is it stupid to go for 10 years having in mind the penalty to repay early I 6% for the 1st 5 years?

We are not planning to sell but also the mortgage is transferable.

What do you guys think?

Thank you all for your thoughts. :) I appreciate that 10 years is a really long time but the reality it it's a payment I can handle. There are 2 scenarios for in 5 years. Either rate will go down. If it does our house price will go up and our payment will go down. Happy days! However, if it goes up our house price will go down and our payment will go up. We can't afford higher rate and if our house price drops we will have less opportunity to sell and move.

I had a look at historical rates and pre 2009 they have never been so low, so I think we were very lucky to be able to buy a house at around 2% interest, but reality is noone can guarantee these percentages won't keep going up. The war in Ukraine and Covid are representative that you never know what is around the corner and noone can guarantee lower rates.

We have spoken to advisor btw they said we should go for the lowest percentage which at the moment is the 10 year. I have another month to mull it over and I will go crazy in this time I think. :)))

Cost of 5 year fixed rate mortgages set to fall below 4%

www.ft.com/content/277efe07-63a7-43aa-bd7f-69f13eab4914

The change in expectations in the overnight index swap market, which follows BoE decisions, suggests the average central bank rate over the coming two years will be 3.75 per cent, down from 4.34 per cent at the start of January. The average BoE rate over the coming five years is now 3.21 per cent, down from 3.93 per cent in January.

Ray Boulger, manager at broker John Charcol, said he expected lenders to move quickly to improve their five-year fixed deals, where the lowest rates are currently around 4.2 per cent.

“There’s a clear ability in the market now to offer a five-year fixed rate at sub-4 per cent and the first lenders to do that will get some good marketing from it,” he added.

Oh the financial times doesn't allow a link to the article but you can google it if interested.

I think if you want the security and can't afford higher than 4% then go for the 10 year.
To me it's balancing the risk of rates going down and you paying a bit more vs the risk of not being able to afford your repayments it's a no-brainer.

If you could easily afford 5/6%+ it might be a bit different, you would be in a better position to take a risk.

Don't forget there are often fees associated with remortgaging and if you're paying them every 2/3 years they add up too.

Is your mortgage due up for renewal right now or are you still 3/6 months out?

Personally I liked the security of knowing that X amount was going to be the payment for the next 10 years, not worrying about what rates were going to do.
Looking at the rates after the decision was made would be pointless as regardless of the rate going up or down we were unaffected. If I go back and track what the rates have done would we have been better off? Possibly, probably even but I genuinely have never thought it was a mistake.
I was not advising anyone what to do just explaining the rationale behind why we booked a 10 year rate which was because
-we could comfortably afford the repayments
-liked the security of knowing what we were paying each month
-didn’t want to pay again in 5 years the high fee for booking a rate again.

Definitely not 10 years. If I was fixing now I’d go for a 2 year fix.

I would go for 5 years and hope it goes down by the time it is next up for review.

didn’t want to pay again in 5 years the high fee for booking a rate again.

The fee is moot if the rate is better than the longer term fix, and there's usually a comparable rate without the fee, you just work out for that 5 year period whether you save more money on interest with or without the fee.

I have to renew by 1st April. We have already locked over 5 deals guys. I'm exhausted! We started in October with a deal for 5.4% I kid you not that was the best at the time. Then I could only dream of 4%. Haha. So now our latest is either the 4% or the 4.13 I think is the 5 year. I do hope they will drop again in the next 2 months so I will get another deal but the trend is for 10 year to be cheaper than 5 year so my question will stand even if we change the deal. Seems like noone supports my 10 year plan so I will need to make my husband angry by changing my mind again. :)

At the time we booked our first fixed rate the fee was about £100, five years on it was about £200. When that fixed rate ended the fees to book a rate for 5 or 10 years were now about £600 and as the fee was the same for the 5 and 10 year term and our repayments were going down with the new 10 year fixed rate my thought process was blimey if it’s £600 now how much will they be charging in another 5 years. I don’t claim to have any answers regarding mortgages I’m just saying what I did and why.

I do support your 10 yr deal IF you can't afford to risk the rates going higher than 4%.

but the trend is for 10 year to be cheaper than 5 year

And that's because they are projected to come down in that period, prior to inflation and Truss when rates could only really go up 10 year deals were more expensive.

would prob avoid 10 year fix now, unless you’re very wary of income fluctuations over that time and willing to pay more for security. But would never say never to a 10 year - they would have been a golden option a couple of years’ ago when you could get them at around 2%.

While I think rates may now plateau and likely go down a bit - they may not get back to the 1-2% historically low rates for quite some time (maybe ever?) unless there is another big event that forces them down again (financial crash, Brexit, Covid have all kept central rates incredibly and historically low over an extended period)

Ultimately you have to do what you think is best for you and your family. MN can all tell you what they think but if rates don’t go the way you want they’re not going to start a go fund me page for you. Look at the figures, factor in any possible events that may influence your decision, sit down with your DH and thrash it out. As far as I’m aware none of the PP myself included are qualified to give you any financial advice, please don’t forget that. Good luck.

Thank you WestBridgewater. :) this is what we have done and decided what whatever happens we will be fine either way. Its just deciding one against the other. Noone knows what the figures will be in 5 years time. Forecasting is not even good for 1 to 2 years let alone 5. The only thing that bugs me is the early repayment fee. If we decide to repay in the next 5 years the fee will be eye watering 20k. Then it goes down slightly. If I didn't have this 6% but instead a 3 or 4 for early exit I wouldn't blink an eye choosing the 10 year deal.

You could comfortably have afforded the repayments on a variable rate as they would have been lower over the 10 years due to extremely low interest rates.

There isn’t always a fee for booking a new deal. For example, our fixed rate with Nationwide came to an end in 2021. They wrote to us 3 months before it ended to offer us other fixed rate deals without fees. They offered us a very good deal to stay with them so we did & switched to another fairly short fixed term. There isn’t normally any fee if you stay with your existing provider.
Security is the only reason that makes sense of the ones you listed but you pay a high premium for that security.

We bought a house this summer (took a few months to complete so only been here a couple of weeks) but we went with a 5 year fix as liked the idea of knowing what we will be paying for the next 5 years as thought by then the % will have probably peaked and stabilized

@Vivi0120 can I ask which lender you are going with? That seems a good rate.

Lloyds

You could comfortably have afforded the repayments on a variable rate as they would have been lower over the 10 years due to extremely low interest rates.
I’m intrigued why my mortgage repayments have bothered you so much, we knew exactly what we were doing.
I’m not telling the OP to commit to 10 years just why I did.
Maybe repayments would have been lower @Twiglets1 but for me the uncertainty of a variable rate was a worry that I didn’t want. With a young family at the time and having just started with a new employer after being made redundant I wanted the security of knowing what outgoings we were going to have. I like a plan.
It’s not for everyone, but for us it was the right decision.

Yeah I get it, it was right for you because you value security extremely highly. I don’t think a 10 year fix for OP is a logical choice however. Unless like you, she values security above everything else and doesn’t mind overpaying and being locked into a contract for 10 years because at least it brings the security of knowing exactly how much she will be paying for the next 10 years.

Nobody knows if I will be overpaying. If I knew what the percentages will be in 5 years I will be a millionaire. This is the thing it is always a calculated risk but perhaps most of you are around my age and don't remember the time when mortgages have been much higher than last 10 years. :) we will still be thinking about it. Appreciate your opinions though its really interesting to see and hear other people's experiences. :)

Article in the Telegraph:

The first five-year mortgage deal below 4pc has been launched since the mini-Budget, as a price war breaks out between lenders.
HSBC has reduced interest rates on 130 of its mortgages and now offers a remortgage deal fixed at 3.99pc for five years, available to borrowers with a 40pc deposit.
The sub-4pc deal with HSBC is only for borrowers remortgaging, but brokers expect similar rates to be available to new buyers in the coming weeks.

www.telegraph.co.uk/personal-banking/mortgages/first-mortgage-4pc-since-mini-budget-price-war-heats/