Petem95

Right guess I have a bit of a dilemma regarding a mortgage.

I've just got a new flat and I just cannot decide what to do regarding the mortgage. Options really are;

- 10 year fixed at 3.84%. 75% LTV. No fees, this would be to pay off the entire mortgage.

OR

- 2 year fixed at 1.66%. 60% LTV. £1000 fees, £160 to move to another provider at the end of 2 years (then I guess another £500-1000 fees and so on)

Do I go for the 10 year fixed as rates will be rising, or go for a 2 year fix and try and pay off as much capital as I can in the 2 years, then hope rates are still low in 2 years when I renew?!!..

What would people do?!

Silver Knight

10 fixed all day. the 2 year with the 1000 fee would probably work out the same interest rate!!

Petem95

Yeah I'm tempted with the 10 year. The flat is 200k so the interest saving is quite a lot getting 1.66 compared to 3.84 however though.

One thing putting me off however is you pay a big fee if you need to end the loan early, but you can transfer it to another property so guess I could just do that..

stilover

With interest rates being rumoured to move within a year or two, I'd go with the 10 year fixed.

It "May" cost you more in the long run if interest rates remain low, but at least you'll always know what it will cost you month in month out for the next 10 years. If rates do go up, so what? Yours is fixed.

Another alternative is an offset mortgage. If you have savings, this can work out even cheaper than the 2 options above. And you can fix the rates too.

Petem95

How do the offset mortgages work then? I've pretty much discounted those without really know what they are.

I do have a fair bit in savings, so potentially that could be an option then?

mamoon2

Interest rates won't rise for the next 5 years. BOE have said they won't increase rates until unemployment improves and that won't happen for a good while.

I'd go for a low rate tracker if i were you. I'm on 2.49% no fee's but there are cheaper ones still now.

scoobyross

An offset is basically a mortage which uses your savings in your bank against the mortgage (bank account and mortgage have to be at same bank).

So for example if you have 20K of savings and your mortgage is £120k, then your savings will work with your mortage so just £100k will be charged at your offset mortgage rate which is usually slighly higher then a normal fixed rate.

Basically if you have no savings don't bother with an offset, lol

Hope this helps

rossyboy

iTrader: (8)

What ever you do, do NOT take a 2 year fix with that level of fees. Massive con when you properly work out the costs.

Why not take a 5 year fix at say 3%. If you were in your "home for life", it might be worth fixing for 10 years, but it could end up being restrictive and costly to move otherwise.

After 5 years, it sounds like you'll have paid of a huge chunk anyway. Rates rises then won't be so much of an issue.

Petem95

Cheers guys, some good advice there!

PaulC72

take the 10 year and move it to your next property if you decide to move beforehand.

tony de wonderful

Carney said he expected it to take 3 years for the unemployment rate to fall to 7%. Clearly you know better though.

CREWJ

If I could afford a fixed 10 year to pay off the full mortgage I'd do that all day long.

cookstar

iTrader: (6)

Hmm

Option 1 interest payment of £480 per month
Option 2 interest payment of £166 per month

Difference of £314 a month in interest so the fees are pretty much irrelevant, I'd take the tracker personally and overpay the difference at least which will come straight off the capital.

Petem95

Yep that's pretty much what I've gone for! 2 year fixed at 1.84% in the end, so repayments in the region of £1600 a month on a £125k loan and I can overpay by 10% of the remaining balance each year, so I'm going to get as much as I can nailed in the 2 year period, then hopefully be able to move to a 3 year fix still on a low rate in 2 years, and then it should pretty much be paid off!

cookstar

iTrader: (6)

Good choice IMO, is there a reason you stuck to 10 years?

DemonDave

iTrader: (13)

Offset - easiest way to pay off early and the best equivalent interest rate you will get on savings. Even better if you are the higher tax rate bracket.

managed to pay off the house by using offsets that allow you to payback capital early without penalty.

mamoon2

Yeah, because he was really likely to tell the truth and drive confidence down further.

As an employer and landlord, i'm pretty confident rates won't rise for 5 years.

You should see the amount of applicants we get for jobs! It's unreal! Young people are in serious danger of being a lost generation.

Petem95

My thinking was that rates will probably rise, and the 10 year fix would protect me against this, but the more I think about it the more I think we'll have low rates for at least 10 years as there's so much debt in the system that even if inflation really takes off (which I expect it to, hence why I'm getting lots of mortgage debt on board so it get eroded by inflation) then they won't raise rates much.

By taking out a really low 2 year fix I can get loads of the capital paid off in the first 2 years, so even if rates are up a bit when I renew the mortgage I'll have a much smaller sum to pay off.

pslewis

Offset Mortgage all the way, I took one when they first came out many years ago, interest only.

It was the best thing I ever did - mortgage gone in 7 years!

mamoon2

If rates started to rise, can you imagine the amount of defaults?

**** would really hit the fan. Low rate tracker and pay as much as you can while they are low