2yr or 5yr fix?

[BluLagoon]

Yes, I know you lot don't have a crystal ball... but wish you did! I'm mulling over a 2yr or 5yr fix (4.97% or 4.68%) for our first house.

The payments are only 50% difference per month but of course after two years we have paid off the interest only and barely touched the original balance.

Rates are projected to come down this year although I think this will be unsteady and happen in fits and starts if it moves much at all. Some say 2027 is when rates will peak and hate the thought of paying hundreds extra every month when we don't need too.

For context we are FTBs and have kids all ready. The mortgage payment will be a stretch but I expect to increase income on the next year or two when my youngest is older.

WWYD?

Not sure what this has to do with infant feeding!

I would take whichever will allow the most overpayments for the least cost, preferably no penalty. Then you can work on bringing down your principal.

https://www.canstar.com.au/home-loans/weekly-fortnightly-monthly-repayments-better/

Both are with the same lender so allow overpayment of 10% each year. Thanks Ill look into paying weekly/fortnightly to reduce interest payments.

My plan is to take it over 30 years with the aim of making overpayments.

Many years ago now, I was able to put an overpayment on in time for our second payment. That meant that we started paying off our principal almost immediately and that just compounded each month.

But, in Australia, most mortgage products allow overpayment without penalty.

I would fix for 5. The chances of Interest rates increasing again over the 2 year period is too high for my liking.

Could you look at a tracker? They often have no exit penalty so you can watch and wait. It's what we've been doing for the last 18 months and have seen several reductions in that time and there's no limit on over payments

For me I’d go two years. I don’t think there are going to be any wild movements in rates over that timescale and I think there is more chance of them heading down than going up. Thing with overpayments is are you really going to do it? I know it’s all exciting having a home, but the reality is you’re probably not going to pay any significant amount into there? There’ll be a new sofa to buy, a boiler going wrong, some patio furniture for the summer. You get the point - are you going to put grands ontop of what is already a big expense? Maybe you will. Either way, two years would have my vote and fingers crossed things go the right way for you. We remortgage in two years so same position here time wise.

For what it's worth, the base rate is predicted to be 2.75% by 2027.

I am remortgaging in a couple of months and I am the same dilemma. I am thinking 3 years as a compromise if my current lender has that type of product :)