[Closed] Boring grown up stuff, how long to fix mortgage?

Sounds sensible to me to focus on overpaying on a fixed low rate for 10 years....rates are going to go up.

We just did similar - re-mortgage to lower rate took 2 years off(!), so 'only' 13 years left.

We fixed for 5 years at 1.17%.

Then our buy to let property finally sold. We paid off 10% of our residential mortgage capital and we invested the remaining capital in S&S ISA's.

If the stars align on our ability to overpay and investments rise at 5-6% for next 5 years, we pay the mortgage off....

If the stars align on our ability to overpay and investments rise at 5-6% for next 5 years, we pay the mortgage off….

Otherwise known as an endowment mortgage?

( not quite, obviously)

I guess what I really need to know is what the base interest rate will be between 2026 - 2031.

Anyone fancy a stab at that?

If the £90 a month isn't going to cause an issue, I'd fix for a long as possible.

Might be worth having a look at Habito, they're offering fixed for life mortgages at the moment with no penalty for early settlement.

Hmm, that's a tricky one. You're gambling that definite 0.7% now against less than 0.7% in 5 years time. Just got to take a punt if you don't own a crystal ball or time machine.

Think I'd go long, but then I've been wrong about just this in the early 2000's when I fixed for 10 years thinking it'd never go lower than, I think it was about 4% at the time. 😖

What does paying the extra £90 a month off at the lower rate do to the period over 5 years? Probably not that much but it all helps.

17 yrs left on mortgage

Why don't you set yourself a target of paying the mortgage off in 5/10 years? - Then you won't have to concern yourself with interest rates.

I guess what I really need to know is what the base interest rate will be between 2026 – 2031.

Anyone fancy a stab at that?

Prior to the Brexit vote and Covid. Mark Carney, the former head of the BOE was asked about the 'new normal' for BOE rates. I can't remember the exact quote, but he said that post-Credit Crunch, rather than 4-6%, considering levels of consumer, corporate and national debt, he would consider 3% to be about right in 'normal times'. Obviously we've not had 'normal times' for more than a decade now. But in that brief moment when the Great Recession was coming to an end and when it looked like we'd never do anything as stupid as vote to leave the EU rates started to rise and 3% was still looking like the level for it.

The BOE will be having their next rate setting meeting in a few days, and it's expected that rates will rise, in fact some mortgage providers have already raised their rates in expectation. It's not going to suddenly leap to 3% or even 1% (I don't think) but with the economic cost of Covid coming to an end and Brexit settling down (again from an economic standpoint) the UK Economy will be moving towards normality for the first time in a very long time. A lot of water has gone under the bridge since Carney called 3% the new normal, and he's no longer at BOE, but that's really the last definitive statement a Governor has given on normality.

At the moment, choosing between 1.3% and 2% 5 years and 10 years seems like a tough decision, but really it shouldn't be because as gambles go, you can only really win small, saving £5400 over 5 years, but you could lose a lot. If rates are even 3% in 5 years, it'll cost you £24600 extra over the next 5 years than you could have paid fixing now.

I sort of work in this area and my conclusion is.... it's complex and heavily dependent on personal situation - as well as (uncertain!) views on future rates. At the end of the day there is a meaningful benefit over the first 5 years of the lower rate - and the 'cost' of that is the risk beyond a 5-year period that rates go up meaningfully and you then have to roll over at a higher rate. That's obvious, but leads to a few useful considerations

What is your capacity to absorb risk of rates rising over 5 years - if you strongly expect you could pay down mortgage significantly, at that point, or over the 5-year period, then the 'cost' of taking the lower rate is far less important and the answer could become obvious.

If on the other hand, you will have a significant balance left on the mortgage after 5 years and are likely to have increased financial commitments (for whatever reason - kids!?) / lower income, then the added security is valuable.

To help you make the call one thing i would do is work out the actual cost difference over 5 years, rather than focus on the actual monthly repayments (albeit they need to be afforable!)

So work out the difference in net position after 5 years - if you were to overpay on the one with lower monthly payments to equalise the amount you are putting in, how much lower is the outstanding mortgage with the lower rate?

the only other point is psychological - if you choose the 10 year option and after 5 years rates are lower, it's not helpful to think you made a 'bad' decision. Whilst it's reasonable to expect rates to increase, these expectations (as well as other things) will be baked into the rates on offer, and these things are not certain. So if you choose to take the certainty of a 10 year deal, try not to worry if you feel you are losing money if rates don't go up!

PS this stuff is not boring to me but I'm a geek

Otherwise known as an endowment mortgage?

Quite. Plus full repayment. So our 13 years might become 5. 8)

the point by P-Jay on doing some simple assessment of risk/cost of rising rates is a good one and relates to my point about capacity to absorb. if you'd be stuffed financially if rates went to 3% in 5 years, then there is a lot of value for you in the fix.

If the 5 year allows for overpayments, I'd go for that & pay the extra £90pcm as that will be off capital. In the 10 year, a chunk of that £90 will go against interest. If rates go up when you're on the 10 year, when you come out it could be quite a jump to the new level, whereas if you were able to do a new deal in year 6 it may not be as much of a change.

Just (today) fixed for 5 years at 1.something, can't remember exactly but it's well below 2, well below inflation, and will give us loads of time to plan the next step if interest rates do go up in the next few years. I think this is the longest mortgage I've had in 20 years of home ownership!

If on the other hand, you will have a significant balance left on the mortgage after 5 years and are likely to have increased financial commitments (for whatever reason – kids!?) / lower income, then the added security is valuable.

This is a good point, kids are 16, 14 and 12 and we hope /expect them all to go to uni. So years 5 - 10 will still be expensive.

Really good helpful advice, thanks everyone.

Remember to factor in the cancellation charges. They can be heinous on long fixed deals and a risk you carry should you need to get out of the mortgage,

Why don’t you set yourself a target of paying the mortgage off in 5/10 years? – Then you won’t have to concern yourself with interest rates.

Why bother with a mortgage at all, just pay it all now?

How much are you borrowing? It's likely that the 10 year costs more than you realise - as well as £90 per month over the term, you will owe more after 5 or 10 years as the payment rate will be based on paying the same amount over the full term.

Why bother with a mortgage at all, just pay it all now?

Dam it, why didn't I think of that before fixing for 5 years at 1.29%! Could have saved a fortune.

If it were me I would fix for 5 and overpay the £90 (or more if you can) a month.

I would use a mortgage overpayment calculator to work out what £90 a month overpayment works out in years and £ saved.

I would also use the mortgage payment calculator to work out how much the rates would need to go up before it starts to hurt you and how this compares to the amount above.

Something to keep in mind with a long fix is what happens if you move. Most banks allow you to port the mortgage to your new house. When we did this they let us port the amount we owed on the old house but we had to open a new mortgage for the difference between the 2 houses. Obviously this new mortgage could only be with the same bank (or we would have to pay the massive early repayment changes) so we got well and truly shafted on the rate.

Intrest rates in my lifetime (mortgage lifetime) of 25 years having justnpaid mine off run from 12% to 1% in practical terms.

Current markets will get stressed at 4 to 5% and the government has a problem north of 6%

Brexit and Covid will drive rates up to counter inflation but i guess 2.5 to 3.5 will become the norm.

Forgot to say i might be completely wrong.

We just fixed at .99% for 5yrs, all agreed and ready ton go when existing deal ends start of dec. glad I got on with it as that rate has now been pulled, next cheapest is 1.19% (although in reality it’s not that much more materially)

Thing that put me off a 10 year is if circumstances changes and we ended up getting huge costs, or lumbered with a high rate due to porting.

5 years seems a decent middle ground, time goes fast, I cant believe some people go through all the effort of mew mortgage fixes every one to two years, it is a right pita

HSBC issued notification of rate change today so we had to get a move along and decide, need to get everything in by 5pm to get the 1.29%. I did actual maths and worked out that after 5 years the rate would have to be more than 4.5% for the 10 year to be better value. That was before factoring in any overpayments we make during the first 5 years. Interest rates are going to go up but I'm gambling on them not being above 4.5% Further to that, whilst we don't have any plans to move or to change anything in the next 10 years you never know, and penalties relating to change were quite high. So have opted to stick with 5% and chuck the extra £90 a month in to over payments, rather than interest.

Thanks for everyone input, much appreciated.

Phew!  Just fixed for 5 years at 1.14%. Could have got 0.99% on two year fix, but wanted a longer term guarantee given the likely rate rises coming.  I anticipate these will be staggered over the next 6-12 months, remaining high for a further 6-12 months so a 2year fix could drop you off a cheap deal at maximum rates, just before they drop again.  Though I'm in no way an economist!    Almost went for 10 years but the extra 4k over 5 years that would have cost put me off. Particularly with energy prices the way they are, and not seemingly like to come down rapidly again anytime soon.  So a cheaper mortgage is offsetting higher utilities bills to maintain some sort of equilibrium, hopefully.

Nationwide renewal by the way.  All done online in minutes, apart from the repeated logging out to confirm the better half is happy with what I'm arranging, and reading the terms (which if you actually even skim read them, takes longer to go through than the system time out allows...

we too ended up going for a 5 year fixed....

with the stamp duty holiday, and lots of movers, i wonder if there will be lot of home owners changing deals in 5 years time.

here's hoping the rates don't go too drastic in that time..

Well BOE interst rates are not going up for another month, so hope for low mortgages for a bit longer.

I think we will be in recession next year at some point with little growth if at all.

BOE and their pathetic limitless tinkering trying to adjust the economy with interest rates will likely go back towards zero/0.1 medium term to provoke growth. Lol. There is no shortage of liquidity and there will still be little growth.

I can't see a scenario with interest rates going high at all further ahead.

Maybe a little bit of an uptick in the short term.

I'm not fixing but my circumstances allow me a lot flexibility that comes with a tracker. A low fix now is still a sensible bet for most though.

However we are in uncertain times!

10 years, no brainer surely....They're so low compared to a few years ago, we did 5 year fix on 5% when the variable rate was 6 point something.