Here’s the question I’ve been asked:
Would you recommend fixing interest rates for longer periods (5years vs 2years) with the current interest rates?
You’ve decided to remortage. But wait, your lender has given you a range of options of rates, depending on how long you want to fix in for and you don’t know what to do…
Here’s how to make the decision in 5 easy steps:
- Look at your strategy for the property. If the plan is to remortgage in 2 years because you know the value is going up, then fix in for 2 years and get the very best rate you can.
- Assess the rest of your portfolio. It’s easier to have all of your mortgage products coming up at once so that you have more options with products and whether you want portfolio wide mortgage products of not. Your decision of how long to fix in for could be simply that you want to fall in line with the rest of your properties.
- Usually, it’s cheaper to fix in for longer even though it’s a higher rate. The reason being is that there are normally costs associated with keep changing products every time your fixed term comes to an end. Compare products using the simple deal analysis, look at the different interest rate. Look at how much you would spend on interest over a 5 year fix, compared to 2 year fix. With the 2 year fix add in the additional fees you will pay for switching products when the fixed term comes to an end (yes, there’s still a fee even if you add it to your loan). Chances are, there shouldn’t be that much difference.
- If you are looking to sell in X years, then set your fixed term to come to an end in X years
- You don’t necessarily have to fix into a product. You could take out a mortgage product with no initial term. Yes, it will probably be more expensive, but it offers you that flexibility. This means that you can remortgage whenever it suits you! Essentially… tell your mortgage broker you don’t want to be fixed in!
There you have it! The answer to your question, and the easiest way of making the decision.
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