fixed rate : fix for 2 , 5 or 10 years?

[Lulumama]

Will have 12 years left to run on the mortgage when we renew in September time. We have had a fixed rate of 4.99 % for almost 4 years.
We will stick with a fixed rate for sure, but are better deals available on 5 year deals than than the 2 year ones? any point or value fixing for 10 years or even the whole 12 years?

or is the financial situation too odd at the moment to know what is the best thing?

anyone?

You probably won't get a great fixed rate mortgage atm, but the benefit is piece of mind that you know the payments are stable. We got a 5 year fixed one 4 years ago which took us to the end of our term, and although at the time it meant we paid a little more than best market rate, now we're happy as interest rates are higher. And we know exactly what we are paying right through to the end of the mortgage.

Am interested in your responses you get.
We are re-mortgaging in October but the impression i got was that there weren't that much better deals in a 10 year fixed V a shorter term.
In that case it depends which way the market will go ?
And at least a 10 year fixed gives you security of knowing what your monthly payments will......

thanks tortoiseshell

with fixed you know where you are, that is the peace of mind, at the moment, i think if we can fix it would be great. but then there has to be an upturn in the economy eventually.. and will we regret a longer term fixed rate>?

Lulu - wait until September - it is a long time away in money market terms.

The question on how long you want to fix for I think is to do with how much certainty you want - do you want fixed outgoings for 2, 5, or 10 years? But really do wait until September.

we are going to wait, i just want to get a handle on how things will be. which i suppose is so hard to predict !!

Lulu long fixes all tend to have a fairly hefty redemption penalty in them these days. SO that if you need or want to move house before the end of the fixed period you have to pay a penalty. Some (a few) will waive the penalty if you keep the mortgage with them, but most charge it anyway.

On that basis if you are intending to move house in the next few years then do factor in the cost of paying off the mortgage early.

It depends on what rate you are being offered really.If it is anything beginning with a 5 you should go with it for as long as possible as I think that will be rare later this year as with rocketing fuel and food prices something has to give

You can often book your rate 3 months in advance IYSWIM, I don't think I'd recommend 10 years at the moment. Personally I like a fixed rate with the option of overpaying each month without penalty. We have also been able to increase/decrease the term of the mortgage easily without penalty so that is always something to fall back on.

The quicker you pay back your mortgage the less you pay in interest that is the other main consideration.

thank you all

i don;t thikn we will be in a position to overpay

we don't want to move house, that is for sure !

i guess we will have to wait and see what happens

I would get a fixed rate for the full term of 12 years. If you look at a graph of interest rates, it's easy to see that in recent years we have been enjoying unusually low rates. We will quite possibly see rates rise over the coming years.

And if you are getting a fixed rate for 5 years, you might as well get it fixed for 12 years, because there is very little difference in those rates.

Talk to your bank about getting a variable rate with a +/-1% cap. That is, your rate will only go up maximum 1% if interest rates go up and go down maximum 1% if interest rates go down. This is what we got. It is cheaper than a completely fixed rate.

thanks cote

just the thought of fixing for 12 years is quite a scary one!

Re "The quicker you pay back your mortgage the less you pay in interest that is the other main consideration."

That depends on how much time you have left on your mortgage.

In the beginning, you will be paying almost entirely interest. So it makes sense to keep throwing chunks of money at the mortgage to lower the capital and hence the interest paid on it. Towards the end you will be paying almost entirely capital, and it makes no sense to pay it off all at once even if you have the remainder of the mortgage saved up.

Why scary?

Fixed rate mortgages are very common in the rest of the world. In fact, UK might be the only place where people take out fixed rates for only two years or so, and then face default and eviction if interest rates make a significant move upwards.

suppose it is just a change in thinking isn;t it? or the fear that rates would drop significantly and we would be worse off

How far do you think rates can drop from current levels? They can go up a lot, though.

Here is the quarterly average UK base rates since 1975.

The question you need to ask yourself is whether you can continue to pay your mortgage if rates go above 10%. If not, I would opt for a fixed rate, or at least once with a cap (as I explained below) at, say, 6%.

cote is right the long term average is about 8% and we will see those levels again i think because silly low rates made people over borrow and now many are in trouble.

i see... in taht case, then a long term fixed rate is definitely what we need , thank you for the advice

'unusually low interest rates recently'

I keep seeing this on here - since when is the last 8 years 'recent' in financial terms?

it has been 8 years since interest rates were above 6%

When did bank of england take over control from chancellor ?

when did we join emu?

doom mongers

Yes the market is unstable but there is no need for hysteria

emu?

European Monetary Union. As opposed to big flightless bird with Rod Hull's arm up its bottom.

am a financial novice .

that did make me arf though!

Glad to be of service. I only come on here for cheap laughs.

I am happy to be called a doom monger if prices become more affordable and this country stops living off debt!

living off debt enables house ownership