Which would you go with, 5 or 10 Year Fixed

Hi Mike,

Up until now I have always been a take the rough with the smooth type of guy as it averages out and gone with variable rates. Especially as for the last 10 years I have predicted rates being/staying low.

However, economic outlook is certainly more volatile so I have recently gone with a 5 year fixed, but mainly because there was not a 10 year option available with the lender.

I always say the key to choosing a fixed is can you look yourself in the eye and say I am happy to pay that rate and I will ignore what happens around me and never regret the decision made. Although in the 3% range you can’t go too far wrong for the security offered.

I guess the question is also, how does this compare with what you were paying already?
I am a bit blessed with historic life time 0.5 over base so am currently paying 0.75% interest only on a couple of properties which is great BUT it makes it very difficult to take any more money out of the property (there is over about £500k in the London house), I cannot access that money without giving up the historic low rate.
Without knowing any other details I would personally go for the slightly higher 10 year deal if it works and gives you sufficient cashflow that you are happy with. Having bought my first flat in 88 with base rate at about 12.0% your 3.49% for 10 years doesn’t seem too bad.
Can you please advise who is offering these two BTL rates?
cheers,
Andy Boothman

Although you’re not planning on selling in the near future, circumstances do change.

What are the penalties for early redemption?

If they are not too onerous I would go for peace of mind with a 10 year fixed.

By the way is there a facility to make ad hoc payments to reduce the capital sum?

If not in a company i’d be tempted by a 10 year fix as a hike in rates with the tax changes could be crippling. Very interested in who is offering a 10 year btl fixed rate?

You don’t say how big the loan will be Mike. If low (e.g. £50k) it may make the £2k in fees for the 10 year fix look onerous.

Unfortunately we’d all like a crystal ball. Re, Andy’s 1988 mortgage at 12%, he may have been tempted by a 10 year fix at 10% say, which would have been disastrous.

I had a couple of friends who fixed their resi mortgages around the 6-7% mark over 10 years ago and were crying into their beer when BoE rates fell to 0.5%. I even saw people posting on forums claiming they’d been “mis-sold” and were stuck paying higher rates and it was “unfair”! Nope, they rolled the dice and lost.

It all comes down to how much security you want, whether you think interest rates will go up and when, and how much you’re prepared to pay in what is effectively insurance, to hedge against that.

I would choose the 10-year rate, provided it allows overpayments. Interest rates are only going one way, which is up, over the next 10 years, and I would have thought a ten-year lock-in would be great for peace of mind if you are planning to hold the property for the long term. A lower-figure redemption penalty would help too, or consider what other assets you hold which could be sold instead during a crisis to minimise your costs.