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  • Mortgages & Finance

    Fix for 2y or 5y?

    I am remortgaging, and can fix our biggest mortgage (around 350k) for:
    - 2y at 2.24%
    - 5y at 3.14%

    2k arrangement fee for each.

    The 5y works out about £11k more expensive over 5 years, iif we assume 2y rates stay the same (unlikely I think) and we have to pay 2x arrangement fees again after years 2 and 4.

    So a cash flow difference of around 240pcm. What would you do?
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    The above is a general comment and is not intended as legal or professional advice; you should not take any action in reliance thereon without obtaining advice specifically tailored to your circumstances from your own solicitor or other professional advisor(s).
    2YR
    looking at 2year libor and future contracts, even if rates increase it will be gradual increase just like the US
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    A 2yr fix will bring you back onto variable just as rates start rising would be my view. Fix for 5 I would say.
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    Its 5 yr for me. When i was building my portfolio I wanted stability because of volume. Even though that stability cost me marginally more sometimes it was a price i wanted to pay for peace of mine at the time.

    The 2yr fix after the initial 2 years when you come to fix again will be likely higher and then higher still in 4 years so factor that in.

    Look at the reversion rate. If you cant fix again for some reason after 2 years that will be around 5% + I`m guessing . So as long as you are comfortable that your other life expenses are stable for 5 years then 5 year is good. If not 100% sure then maybe 2 year because the redemption rate will be at say 5% then if your life goes wonky after say 3 yrs and you fixed for 5 and you need to sell be aware it would cost you 17.5K .

    On paper with a 5 year fix you will lose out maybe in years 1- 2, start to break even in year 3 and hopefully see the comparative gain in years 4 and 5 .
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    Jonathan Clarke. http://www.buytoletmk.com

    5 year fix is a no brainer IMHO.
    With the 5 year rate you will pay total 4.5 percent more over 5 years.
    You will definitely pay at least as much in two remortgaging processes, if you go for the 2 year only fix.
    Further the rate for 5 year seems very good to me.

    Another factor is the arrangment fee of 2 k is adding 0.35 percent to the 2 year rate but only 0.15 percent to the 5 year rate.
    So 5 year fix makes more sense.
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    There is no obvious answer (as can seen from comments above).

    Here is another way to think of it.

    In 2 years time, what do you think a 2 year fixed rate will be? And in 4 years time, what do you think a 2 year fixed rate will be?

    If you think that the rate will be below around 3.4%, then go for the 2 year fixed and keep repeating every 2 years (paying £2k each time). If not, then stick to the 5 year.

    This is not an exact science but as a rough estimate should guide your thinking.

    Also bear in mind that 5 year locks you in if you want to take money out (check T&Cs) but the 2 year gives you option every 2 years to take money out if you want.
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    We went for 5y. Thanks all for the inputs.
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    The above is a general comment and is not intended as legal or professional advice; you should not take any action in reliance thereon without obtaining advice specifically tailored to your circumstances from your own solicitor or other professional advisor(s).

    Hi Fanio,

    A bit late on this one, but do you mind me asking who you went with? Am looking to remortgage at apx 490, but my broker has come back with a 4.09% for a 5 year and 3.59% for a 2 year which both seem a bit high. The LTV is only going to be 50% so I would have thought that should work in my favour.

    Thanks,

    Nick

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    I think that's a wise choice (we'll see in 5 yrs time!!)
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    fanio,
    I suspect you were nervous about interest rate rises because of the size of the loan. Would you have chosen a different option if the loan was smaller?

    I would just like to add that 2 years ago general consensus on this forum was that interest rates were going to rise and that fixing for 5yrs was a must.

    At the time, I had two mortgage products coming to an end and chose 2yr trackers (lower rate). Two years on, I've just moved on to a new lower 2yr tracker; a lot less than the original 5yr fix.

    Generally, BTL lenders have an option to switch to another product without any fees. This may change in the future but a risk I'm willing to take in return for flexibility. 5 yrs is a long time. It's impossible to predict what the economic landscape will be then.

    Personally, I think lenders want you to fix and there's a certain amount of scaremongering to get you to do so.

    Unfortunately, tracker rates and their terms aren't as attractive as they used to be.
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    I would have gone for 5-yr, so right move Fanio, UNLESS you might have wanted to sell/develop prior: then ERC might be a factor
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