Mortgage Length - 2, 5 or 10 years?

Don
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Telford, Shropshire
I recently did mine and locked it for 5 years due to the Brexit uncertainty; Don't really know what'll happen with regards to interest rates but for 5 years I'm covered and can re-evaluate nearer the time;
 
Soldato
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18 Oct 2002
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4,898
The way I look at this on a 5yr vs 10yr is to look at where you're at at the end of 5 years.

if you go for the 5 year you've got £7380 in hand at the end that you wouldn't have if you'd gone for the 10 year fix. That gives you £123 a month for the next 60 months to take you out to 10 years, so if you did 2 5 year fixes the second can be more expensive and you'd still be better off. Work out what rate this would be, then decide if you think rates will hit that level in the next 5 years.

I'd always take the longest term you reasonably can, then just overpay to bring your payments up to the same amount you would pay to clear it in 25 years. It's far more difficult to extend the term should circumstances change than it is to arrange overpayments, and it won't cost you any more in interest so it's a no brainer really. if you've got overpayments on account you can often take payment holidays which can be godsend if you lose your income for a while.

You don't pay the ERC if one of the borrowers die - I don't know if thats the case with all lenders, but certainly Nationwide don't charge it.
 
Soldato
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The 10% overpayment limit is a bit worrying. If you suddenly come into cash or the economy improves (ha!) then you might want to make more than 10% overpayments. That's what would really help cut the overall cost of the mortgage.

You've always got the option of having a large overpayment at the end of your fixed period. But this would need to be a bigger overpayment than five years worth of 10% overpayments (assuming you fix for 5 years). If you anticipate a sudden large sum of money in 5 years (inheritance) then may not be worth fixing for 10 years.

There is talk of a rate rise end of this year wont be much if it happens though, its based on a smooth Brexit though so I would say thats looking unlikely, however if we have a hard Brexit it could well end up with a cut. They were aiming to get rates up a bit in order to give headroom to make cuts if required later.

Personally i can't see the rates budging at all, the economy will be in an extremely fragile state after brexit regardless of a hard exit - will probably be more volatile with a hard brexit. If anything i'd imagine we'd see a shrinkage of base rate, probably back down to 0.5%. But even if they decide to increase, they'll only do so in small increments.
 
Associate
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Essex
Personally I think 2 year fixed is fine, discussed with our mortgage/financial adviser and he always recommends 2 years and sees little point fixing for more for the majority of people. One thing extra to take into account, if you take a 2 year fixed and within that time go into a lower LTV bracket (say 75% to 70%) when you come to renew the mortgage you'll have access to slightly better deals sooner, however if your fixed for longer you won't benefit from those lower deals until your longer term is up. For us, we fixed for 2 years when the interest rate was 0.25%. When we went to re-fix we went into the next LTV bracket due to paying off some mortgage and even thou the interest rate was now 0.75% we still had lower monthly payments as our mortgage rate was lower. Only by about £2.19/month, but if the interest rate stayed the same we would have been saving a few more quid on that.
 
Soldato
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Other thinking is take the 5 year and overpay like hell - then at end either rates are still low and good stuff - or they are higher but I have brought balance down so net payment ends up lower.

id do this, however you will likely be limited to a how much you can over pay (and get fined if you put in too much).. on a5 year fixed I was limited to 10% over payments for the first 2 years

other things to consider

1) some mortgages let you pull back over payments (useful if you need money fast later on)
2) I don't know how common it is but we overpaid 450 per month and they re-calculated the interest yearly, we found out if we paid 500 they would recalculate the interest monthly (not a massive saving but its something)
 
Associate
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they always advise 2 years fixed so they get repeat business..

Maybe, I don't pay a fee or get charged as I have family in the business so I don't think they have much to gain. Looking back at the cost for a 5year fixed, it would have cost me £61/month extra a month to fix it for 5years as apposed to 2 which I did. So over 5 years it would have cost me an extra £3660. I've saved an additional £2.19/month since re-fixing it (big woop) so, unless the interest rates go up significantly before I re-fix again at the end of the 4th year (as I fixed again for 2 years), which would then cover the initial 5 year fix period, I'll look to save £3738.84. Obviously less if the interest rates go up or more if it goes down. Either way I'm confident it was the right move but a fair margin.
 
Associate
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5 Mar 2019
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We have always gone for fixed, 2 years initially, then another 2 year fixed, but we moved in Jan this year, fortunately just within the time frame to negate the charge for ending early (by 2 days!). We have since gone for a 10 year fixed, with fees for exiting with the first 5 years (decreasing every year), and then the last 5 years no penalty. I would rather pay slightly more monthly but know as long as possible that the figure is set and cant fluctuate. Its much more peace of mind knowing that in my opinion, but I try to be risk averse with things like that!
 
Soldato
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12,305
Maybe, I don't pay a fee or get charged as I have family in the business so I don't think they have much to gain. Looking back at the cost for a 5year fixed, it would have cost me £61/month extra a month to fix it for 5years as apposed to 2 which I did. So over 5 years it would have cost me an extra £3660. I've saved an additional £2.19/month since re-fixing it (big woop) so, unless the interest rates go up significantly before I re-fix again at the end of the 4th year (as I fixed again for 2 years), which would then cover the initial 5 year fix period, I'll look to save £3738.84. Obviously less if the interest rates go up or more if it goes down. Either way I'm confident it was the right move but a fair margin.

This is why it's all about risk profiles. If you're happy to fix for short term or stick with variable rate tracker and things work out well, then you can save yourself quite a bit of money. But that same risk applies if things go belly up and if they interest rates increase significantly. I'm sure for every person who's done well with variable rate or short term fixed, you'll find someone who's been stung by it and would have done better in a longer fix.

It's part of the reason your MA/IFA should discuss your risk profiles when applying.
 
Joined
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Wilds of suffolk
id do this, however you will likely be limited to a how much you can over pay (and get fined if you put in too much).. on a5 year fixed I was limited to 10% over payments for the first 2 years

other things to consider

1) some mortgages let you pull back over payments (useful if you need money fast later on)
2) I don't know how common it is but we overpaid 450 per month and they re-calculated the interest yearly, we found out if we paid 500 they would recalculate the interest monthly (not a massive saving but its something)

Nationwide?

In regards your first point you have to be very careful here. There was a time when a lot (most) allowed any additional payments to be actually drawn back down as cash. Most now seem to be payment holidays to use up your reserve.
To be honest i think the later is probably better, but its clear you need to be aware what specifically the option is or isnt on a mortgage
 
Joined
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Wilds of suffolk
Personally I think 2 year fixed is fine, discussed with our mortgage/financial adviser and he always recommends 2 years and sees little point fixing for more for the majority of people. One thing extra to take into account, if you take a 2 year fixed and within that time go into a lower LTV bracket (say 75% to 70%) when you come to renew the mortgage you'll have access to slightly better deals sooner, however if your fixed for longer you won't benefit from those lower deals until your longer term is up. For us, we fixed for 2 years when the interest rate was 0.25%. When we went to re-fix we went into the next LTV bracket due to paying off some mortgage and even thou the interest rate was now 0.75% we still had lower monthly payments as our mortgage rate was lower. Only by about £2.19/month, but if the interest rate stayed the same we would have been saving a few more quid on that.

Your looking pretty much at the positives and none of the negatives.

Go back to the last crash, house prices dropped about 20%, lending criteria changed significantly. There were plenty of people who saw their LTV go UP, and that they could now not move lender as they did not meet new lenders criteria.
Existing lenders would also check and refuse people moving onto deals, even though they were on existing loans and in theory would have worse affordability on the existing than a new loan. Its an industry where the computer still says yes or no.

Some people (ex Northern rock customers) still have this issue today, they do not need meet current lending criteria so are kept on really bad deals from when the mortgage books were sold on.
 
Soldato
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Third Earth
I've always gone with 5 year fixed deals, I prefer the extra security of it. I appreciate the interest rate will always be a bit higher, but we've been fortunate enough to have good LTV, so it's been a proportionally good rate.
 
Soldato
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Wetherspoons
Maybe, I don't pay a fee or get charged as I have family in the business so I don't think they have much to gain.

They'll get a proc fee from the lender. Something like .35% of the loan amount, of course that can vary. So they ain't doing it of the kindness of their hearts....

I would never pay a broker anything, I'd never use a broker full stop, I am in the industry and I have a dim view of them. But I'll stop there before I go full blown rant.

Saying that, going back 10 years knowing what we know now, short cheap rates have been the win.
 
Soldato
Joined
21 Aug 2006
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7,506
No one has mentioned the arrangement fee in their calculations. I took a 2 year tracker as it was the only one that didn’t have early repayment charge, as we weren’t sure whether or not we’d move abroad in that time. Now where still in the same position and coming up for renewal so will probably need to take a tracker again.
 
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