This week I've had to decide whether to fix our mortgage for a further period of time to secure a low-ish interest rate or risk going onto a variable rate that is more than twice our current one, effectively doubling our mortgage interest payments. Not a tough choice really given our current savings and retirement goals, but how long to fix it for has required some mulling over.
The traditional length of time is 2 years and these deals usually have the lowest interest rate, with or without product fees. This time, however, I'm thinking of paying a little more and fixing for a longer 5-year deal.
Why?
Lots of reasons.
1. Interest rate rises are on the cards in the UK, probably starting around August time, so I want to lock in a decent rate now. If inflation suddenly started rising over the next couple of years and the Bank of England scrambled to successively raise interest rates to control it, we could be looking at paying hundreds of pounds more every month when our two-year fixed deal comes to an end. A 1% rise, while sounding small, is actually quite 'ouchy' for us.
2. I don't know how secure my job is post-Brexit and the last thing I want is to have to prove my income for a new fixed mortgage deal in two years time when I may have just lost my job. I'm a great believer in 'Sod's Law', which states that whatever can go wrong will and with the worst outcome.
3. Martin is at an age where he could be offered voluntary redundancy at any time. If he is and the deal is so favourable we take it, we don't want him to have to prove his income for a new fixed mortgage deal in two years. While we know we can meet our commitments, our lender's computer doesn't really 'get' frugal people and works on standard percentages of joint income. It will say 'no' when based on one income and savings due to the outstanding mortgage amount, even if we prove we are managing fine because we don't have the usual gym memberships, netflix subscriptions and loans. In five years time it could be a different story.
4. We may have a house price crash. Our area has quite slow growing house prices but should there be rampant inflation, recession, or a house price crash within the next couple of years, the value of our home could drop and our Loan-to-Value rate could mean we don't get the best deal.
5. Five years gives enough time for any post-Brexit troubles to have ironed themselves out, for any mini-house price crashes and stock market tumbles to recover.
6. We'll be much more secure financially - another five years of pay rises, investments rising, savings' interest compounding, pensions maturing, and more capital paid down on the mortgage.
So we're on a rate of 1.89% at the moment, looking at 2.29% for five years, and have submitted our financial paperwork to our broker to see if we will be accepted.
It's not a given though. I'm no longer doing as much freelance work as I was 2-3 years ago, having opted to cut back on that to ensure I have time for gardening and smallholding tasks that give me pleasure. However, given that our overall savings and the value of the property having increased since we bought this place two years ago, I can't see there being a major problem. And having our savings account with our mortgage provider has the added bonus of letting them see how much we save regularly every month!
