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Remortgage - 2yr vs 5 yr Fix Rate? What are people doing these days?


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Hey Fellow Hubbers! 
 
So my property in Sheffield is coming up for remortgage now and I am trying to decide whether a 2yr or 5yr is best. This is my first property and the first remortgage, so just interested in what people normally do. I know it depends on your goals, and for me, it’s maximise cashflow and pull out as much equity as possible to reinvest. I do like the idea of knowing what I will pay for the next 5 years but as I am only at the beginning of my property journey feel I need to be a bit more aggressive and recycle my deposit to get that snowballing rolling. So my thoughts are that rates will not go up too much over the next 2 years (according to economists but who knows with Brexit yawn), so I could do a 2 year and then a 5 year to lock in a lowish rate. 
 
I could also potentially just take a 5 year and then get a further advance or second charge mortgage to run alongside it if there is substantial equity. The 2 year would improve my monthly cash flow by about £30.
 
The other thing is those pesky arrangement fees, sure they give you better cash flow the higher they are but your mortgage ends up getting bigger and bigger, what are your thoughts on this? I know that it may look cheaper paying the arrangement fee, but you will be paying interest on that fee for the life of the mortgage right!
 
Any advice would be greatly appreciated!  If you need any other info to give me a better answer, please ask :)
 
Cheers, Alex
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  • 2 weeks later...

Hi Alex,

I see that you posted this question a few times and there have been no volunteers to put you out of your misery...

In fairness, it's exactly as you said it, the answer depends on your goals, personal situation, plans, beliefs, etc. There's no universal answer.

A few years ago 2yr fixes seemed to be the craze, now admittedly more people are taking a 5yr fix - yes, partly because of this whole Brexit malarkey, perhaps also because 5yr fixed rates are often not too much higher than the 2yr deals, and some people may also have got fed up/tired of remortgaging and paying an extra arrangement fee...

I would just add 2 things to your post, please:

- arrangement fee - you don't have to add it to the mortgage and then pay interest for the rest of the life of the mortgage, you could pay the fee upfront

- taking a further advance or a second charge is an option, assuming that it's affordable at the time based on your income and outgoings, but the rates are higher than a normal mortgage. However, you can't really make an informed decision about taking out a higher mortgage amount now and paying more per month versus taking a further advance/second charge later, because no one knows what the rates will be later...

So, while I'm just adding my pennyworth, ultimately, I'm not quite sure if it's of any help or if anyone else could really help with your predicament.

Kind regards, Lilla 

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My personal preference is 2 years due to the short length and then I can just keep reviewing every 24 months for different rates to maximise cash flow. This can vary from £10 to £40 but any amount of profit is profit!!

But saying that my wife has just fixed one of our BTL for 5 years!!!!!!

She said she wanted to due to uncertainty of brexit. But personally I dont think brexit will effect the market too much and if it does this will be for a very short time. I can see prices still rising for the next 5 years.

So I would say 2 years.

Keep us updated,

Best wishes

Jase.

 

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18 hours ago, lilla d said:

I would just add 2 things to your post, please:

- arrangement fee - you don't have to add it to the mortgage and then pay interest for the rest of the life of the mortgage, you could pay the fee upfront

- taking a further advance or a second charge is an option, assuming that it's affordable at the time based on your income and outgoings, but the rates are higher than a normal mortgage. However, you can't really make an informed decision about taking out a higher mortgage amount now and paying more per month versus taking a further advance/second charge later, because no one knows what the rates will be later...

Hi Lilla

Thanks for your response! Re the arrangement fees, I have not actually considered paying upfront, I would think that it would work out more expensive over the 2 years, may work out over 5 years though. In the end, I decided to go for a 5-year fix (without a fee) as I am taking out some equity and just want to leave that one now (if I take out any more without the rent going up, the ROI will look terrible). I am purchasing another city centre one in Sheffield and decided to go 2 years on that one as I foresee a lot more growth in that area so feel confident taking a 2 year.

Guess I still have the option of a further advance or a second charge for the 5 year fix, depending on all the variables, rates, rent etc. Thanks again for your comments, very much appreciated :)

 

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13 hours ago, snookjas said:

My personal preference is 2 years due to the short length and then I can just keep reviewing every 24 months for different rates to maximise cash flow. This can vary from £10 to £40 but any amount of profit is profit!!

But saying that my wife has just fixed one of our BTL for 5 years!!!!!!

She said she wanted to due to uncertainty of brexit. But personally I dont think brexit will effect the market too much and if it does this will be for a very short time. I can see prices still rising for the next 5 years.

So I would say 2 years.

Keep us updated,

Best wishes

Jase.

 

Hi Jase,

So done a bit of both really, if you read my response to Lilla. Feeling confident about the next city centre one I am buying and the value going up for the next 2 years to build up some nice equity, and then at least I wont have 2 remortgages coming up in the next 2 years at the same time :D

All the best!, Thanks

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