10yr Fixed Rate Mortage or risk shorter terms?

Soldato
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I've just put some inheritance onto my mortgage and as I've been paying SVR for nearly two years now, it's time to lock myself into something for a better rate.
I'm in a situation now where I could get myself a 10yr fixed rate mortgage with no upfront fee and that would actually see me through to the end of the mortgage. So ten more years of paying a pre-determined amount each month and that's it - property is mine.

The alternative would be to lock myself into a slightly lower rate 2-5 year mortgage and see what's happening after that time.
My gut feeling is that interest rates will only go in one direction from here, there is uncertainty in the UK and that paying a slightly higher rate interest now (still lower than the SVR I've been paying for a couple of years) but guaranteeing my repayments through to the property being mine seems like the sensible option.

Would anyone disagree with that? Would anyone do it differently?

Cheers all.
 

JC

JC

Soldato
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As the posters above say, you really need to look at the rates in comparison.

Another way of thinking about this is:
  • you could get a cheaper 5 year rate
  • that is guaranteeing that every year for the next 5 years you are paying % less than the 10 year rate would have cost you
  • so after 5 years you have saved £x
  • In 5 years time you could get another 5 year rate
  • Yes interest rates might have risen, but work out what % would need to be that equals the £x you saved
  • Then ask yourself, do you think interest rates will rise by that % or not
 
Man of Honour
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I think the question is ‘how much cheaper could I get it’ against ‘likelihood of that happening and effort’.

If there was only a £1,000 or so in it I wouldn’t agonise over it. It is a gamble either way so don’t beat yourself up over it too much.
 
Soldato
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I'd personally go 10years fixed, don't have to think about it again. Will cost a bit more, but two 5 year deals could cost more.
I'm not a gambler, I'd play safe.
 
Soldato
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More info needed, in particular what rates has the OP been offered?

We were on 1%, but over the last few years or so has crept up to 1.5%. A 10 year fixed rate for me would ensure i knew what i was paying each month, but i don't think we will see a rise of such significant proportion that a 10 year could beat my current deal.
 
Soldato
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There is likely no correct financial answer to this, as nobody knows what will happen with interest rates. That won’t stop some offering their opinions as fact though.

It really just comes down to the personal trade off you’re prepared to make, balancing certainty of repayment amounts against the risk that your repayments could be lower with less / shorter certainty.
 
Soldato
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Some lenders allow you to port your product and move penalty free in the fixed interest period (i.e. staying with them)

If you are pretty certain you won't move then a 10 year fixed is a good shout. It's very easy to look at costs and savings over the 10 year period of different mortgage products for comparison too. Including factoring in rate rises on moving to shorter period but greater discounted rate products.

Of course any over payment accruals can still be made and will be of benefit.

It also depends on the early termination penalty clauses and value of mortgage. 5% termination fee on 100k mortgage is not as significant as on a 400k mortgage.
 
Man of Honour
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You really need to show all the options, otherwise it's difficult to know how much you are spending by having the certainty. If you only have 10 years left, you likely have a pretty tasty loan to value ratio anyway, so any changes in rates will effect you less than others.
 
Soldato
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Depends on how long you have left, and what the balance is. Interest rates have a smaller effect on smaller balances.

5 year fix isn't risky if you only have say £20k left at the end of it: a 5% jump in rates (very unlikely) would only cost you about £70 a month or something.
 
Caporegime
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I'm amazed by the number who don't have a clue and are saying fix for 10 years.

Fix for 2,3 or 5 years max.

Why because the interest you pay is on the outstanding amount I 2,3or5 years this will be a lot lower than it is today. Especially of you only have 10 years to go.

I would fix for 2,3 or 5 and the money saved by not fixing for 10, use that to overpay the mortgage. Effectively you may find that you will pay off the mortgage within 9 years (1 year early) and paid less to do so (less interest).

Interest rates aren't going anywhere. They will not rise or fall significantly. Our economy is slowing down. Therefore they want people to spend. If they want them to spend then they need to offer cheap credit. So interest rates in theory should go down.

Brexit again should make them go down. So I would gamble and take a 3 year fixed personally. Overpay by the saving and in 3 years time fix again for short term and overpay the savings.

Fixing now for 10 years should only be done by someone who absolutely could not afford for interest rates to rise at all. Therefore someone with zero disposable income or thereabouts.

If on a 2 or 3 year fix you are saving £100 a month then that is £3600 of overpayments. As you overpay your interest becomes less and less it's a compound effect. So you may find in 3 years time you can now overpay by £200 a month with no hit to your monthly disposable. Meaning you pay off the mortgage within 8 years instead of 10. So you in 8 years will now have all that money spare rather than having to wait until 10 years have passed.

Fixing long term in your strong position makes no sense. Due to the higher interest you pay for the long term fix.
 
Caporegime
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Depends on how long you have left, and what the balance is. Interest rates have a smaller effect on smaller balances.

5 year fix isn't risky if you only have say £20k left at the end of it: a 5% jump in rates (very unlikely) would only cost you about £70 a month or something.

He only has 10 years left so I'm assuming that the outstanding amount is small.

Therefore stupid to fix for 10 years when he can overpay the savings and compound further savings into overpayments so that not only does he pay the least amount of interest he pays it back a lot quicker than 10 years
 
Soldato
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I recently faced a similar choice and decided to go with a couple of years variable rate. The reason being it would probably save me money and I could afford the risk of any amount I considered it likely to go up. Probable saving with affordable risk was a 'yes' for me. But that's not to say it would be the right choice for you. I have foreign clients so I am in effect an exporter. There is a risk that inflation rates will go up more than expected but if so it would be in response to the pound falling. So for me, it would I'd be gaining with one hand whilst I lost with the other and still be alright. I personally think the pound will fall. It's almost unarguably over-valued which means one way or another, there will be an adjustment. So I wouldn't go as far as to say that a 10-year fixed is the right choice, but I'd say it's a good choice. The other reason I went VR is because the bank had no limits on over-paying that way and I hope to over-pay substantially the next few years. Just like the foreign clients thing, that also doesn't sound like it applies to you. (And the gain of over-paying is far less towards the end of your term than at the beginning).

When I first got my mortgage, I took a five year fixed because I'm very risk averse. That was a costly mistake. But the market is different now and I don't see the same thing repeating in the immediate future. So I would give a soft 'yes' to the 10 year. Certainty is nice.
 
Don
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I think the question is ‘how much cheaper could I get it’ against ‘likelihood of that happening and effort’.

If there was only a £1,000 or so in it I wouldn’t agonise over it. It is a gamble either way so don’t beat yourself up over it too much.
Especially when inflation is eroding the real value of your mortgage over the longer periods of time that a mortgage is usually paid back over.
 
Soldato
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There is likely no correct financial answer to this, as nobody knows what will happen with interest rates. That won’t stop some offering their opinions as fact though.

I'm amazed by the number who don't have a clue and are saying fix for 10 years.

Fix for 2,3 or 5 years max.

Why because the interest you pay is on the outstanding amount I 2,3or5 years this will be a lot lower than it is today. Especially of you only have 10 years to go.

I would fix for 2,3 or 5 and the money saved by not fixing for 10, use that to overpay the mortgage. Effectively you may find that you will pay off the mortgage within 9 years (1 year early) and paid less to do so (less interest).

Interest rates aren't going anywhere. They will not rise or fall significantly. Our economy is slowing down. Therefore they want people to spend. If they want them to spend then they need to offer cheap credit. So interest rates in theory should go down.

Brexit again should make them go down. So I would gamble and take a 3 year fixed personally. Overpay by the saving and in 3 years time fix again for short term and overpay the savings.

Fixing now for 10 years should only be done by someone who absolutely could not afford for interest rates to rise at all. Therefore someone with zero disposable income or thereabouts.

If on a 2 or 3 year fix you are saving £100 a month then that is £3600 of overpayments. As you overpay your interest becomes less and less it's a compound effect. So you may find in 3 years time you can now overpay by £200 a month with no hit to your monthly disposable. Meaning you pay off the mortgage within 8 years instead of 10. So you in 8 years will now have all that money spare rather than having to wait until 10 years have passed.

Fixing long term in your strong position makes no sense. Due to the higher interest you pay for the long term fix.

And there we go.
 
Don
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That's not right either surely, the interest is paid on the outstanding amount over the entire duration of the mortgage, not the fixed part and it drops over time as you pay it back. If you want to reduce the amount you pay back, you reduce the mortgage length, not the fixed interest period.
 
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