Mortgage lenders are providing borrowers with more options. Borrowers can now choose a fixed-rate deal that would last for the full term of their mortgage, which can provide certainty over the long term. However, it’s not the right option for every homeowner, and there are some things you need to carefully consider before you choose a deal according to Paul Grennan, Principal Mortgage and Equity Release Adviser.
A fixed-rate mortgage means the interest rate you pay is fixed for a defined period; two-year and five-year deals are common options on the market. Once a deal expires, you can choose to take out another fixed-term mortgage or look at other options. If you want to know exactly how much your expenses will be each month, a fixed-term deal can provide peace of mind, but you may pay more interest.
For some borrowers, there is now the option to fix their interest rate for up to 40 years. That means you can choose a mortgage deal and remain on it until the mortgage term is over and you own the house outright. The number of 10-year fixed-rate deals is also on the rise, according to the BBC.
If you’re tempted by a long-term fixed-rate deal, there are two key benefits.
First, you know what your monthly repayment will be for the long term. It can make budgeting and planning for the future much easier. If you’re worried about how you’d cope financially if interest rates increased, it can provide you with peace of mind.
Second, you won’t need to search for a new deal as frequently. Usually, when a mortgage deal ends you’re placed on your lender’s standard variable rate (SVR), which is typically not competitive. Finding a new deal can be time-consuming and you may also need to pay an arrangement fee to access the best deals. So, a long-term deal could save you money in this area.
On the other hand, there are potential drawbacks, so you need to carefully consider your situation before deciding.
3 things to consider before choosing a long-term fixed-rate mortgage
1. Will your interest payments be more?
A fixed-term deal means you know how much interest you’ll be paying. However, it can work out more expensive in the long term. You won’t benefit from a drop in interest rates, for example, as you will still be paying the higher fixed-rate.
Usually, as you pay off your mortgage and own more equity in a property, the interest rate you pay falls when you remortgage. If you choose a long-term mortgage, you could find the total interest rate is more because you’re not remortgaging as your equity increases.
2. How could changes to your circumstances affect your plans?
A long-term fixed-rate deal may seem like a good idea now, but your circumstances could change.
In some cases, you may be able to port your mortgage to another property if you want to move, but this isn’t guaranteed. Other changes, such as a relationship break up or reducing your working hours, could also affect what’s affordable in the future. With a mortgage that could last for 40 years, you need to think about how your life and goals may change during that time.
3. Will it still provide you with enough flexibility?
A long-term mortgage could mean you don’t have as much flexibility. So, you should make sure you read your contract carefully to understand any restrictions.
For instance, is it possible to overpay your mortgage to reduce the debt quicker? If so, would you face additional charges for overpaying? And is borrowing more against your home to cover home improvement costs an option? Even if you aren’t thinking about these things now, it’s worth taking some time to review them as you may want more flexibility in the future.
Are you ready to take out a mortgage? You can contact us to discuss your needs and priorities and we’ll help you search and apply for a mortgage that meets your criteria.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
Your home maybe repossessed if you do not keep up repayments on your mortgage.