Q My husband and I are remortgaging in November. Our options aren’t the best. We’ve been offered a two-year fixed-rate deal at 5.64% with a product fee of £1,249. If the fee is added to the loan, the monthly repayment is £1,837, or £1,830 if it’s not. The alternative is a five-year fixed-rate deal with an interest rate of 5.23% and product fee of £1,249. If the product fee is added to the loan, the monthly repayment is £1,745 and £1,739 if it’s not.
My question is would it be better to remortgage with the two-year fixed-rate and hope interest rates are lower when we come to remortgage again or go for the five-year deal which works out less a month at the moment but for a longer period of time.
We have three young children – all under the age of four – and we both work. There is some potential for an increase in our earnings and a drop in childcare costs. But our current childcare costs will be replaced by others costs, such as charges for wrap-around care and/or fees for after-school activities.
I feel very squeezed and I’m really not sure what to do for the best. Our mortgage at the moment is £1,151 a month so it’s a big jump. SS
A Your options are actually better than you think. The two-year deal you’ve been offered looks pretty good compared with the two-year fixed-rate deals listed in the mortgage selections in October’s moneyfacts for people wanting to remortgage. However, with the five-year offering, you could do better with a fixed rate mortgage from the Bank of Ireland with an interest rate of 5.19% but a fee of £1,495 (but only if you arrange the loan through a mortgage intermediary). So rather than accepting what you’ve been offered – I’m assuming by your current lender – I suggest that you use an independent all-of-market mortgage broker to find you a better remortgage deal to suit the size of your mortgage as well as the proportion of your property’s value that the loan represents.
What I don’t think you should do is base your decision on which length of fixed-rate period you should go for on unknowable potential ups and downs in your income and hoped-for lower interest rates. The reason for taking out a fixed-rate mortgage is to ensure certainty in your monthly outgoings. Given that you feel squeezed now, I’m guessing that you’d like the certainty of knowing that your monthly mortgage repayment won’t go up and down at random for as long as possible.
