When shopping for a mortgage, you can choose a deal, whether the interest rate is fixed for a number of years or fluctuates over time.
Most homeowners go for fixed deals where the interest rate is locked in for two, three or five years. However, some lenders have started offering mortgages that can be locked in for a decade or more.
In this article we explain:
- The pros and cons of fixed rate mortgages
- Is locking yourself longer right for you
- Which lenders offer longer fixed rate mortgages
Fixed rate offers and mortgage conditions
Don’t confuse a fixed rate contract with a mortgage term.
- A fixed offer is a short period of time during the term of the mortgage during which you can lock in an interest rate.
- The term of the mortgage is the term of the loan which gives you an indication of how long it will take to pay off the entire mortgage, whether in annual or monthly payments.
Most people will switch to a new fixed contract at the end of their current contract to avoid continuing on their lender’s expensive default rate, known as the standard variable rate. So while many homeowners will have a mortgage term of 35 years, every few years they will take out a new fixed rate contract.
What is unusual about the new Habito line is that the interest rate can be fixed for the duration of the mortgage term.
But this is not without risks.
Learn more: Calculate your mortgage payments
Do I have to take out a long fixed rate mortgage?
When deciding whether or not to repair for a long time, the most important thing to consider is how the interest rate compares to what is being offered. in the mortgage market.
Interest rates are at record highs and many fixed transactions are currently offering rates between 2% and 3%. However, if you want to lay down for a term of 10 years or more, you usually have to pay more for the lien.
What are the disadvantages of a fixed rate home loan?
Interest rates on Habito’s new range of mortgages vary between 2.99% and 5.35% depending on:
- the size of your deposit
- the duration of the mortgage term
These rates are much more expensive than the shorter term offers, so you might miss out on the really cheap deals currently on offer. But you need to assess whether the predictable refunds are worth the extra cost.
A 25-year long-term mortgage was common for first-time buyers, but with rising home prices many will now opt for a 30-year or longer mortgage to make repayments more affordable.
The maximum is usually a 40-year mortgage, which many banks currently offer. These have been dubbed âmarathon mortgagesâ. It should be noted that banks like Santander, which offer a 40-year term, have a maximum age limit of 75 for borrowers. Thus, people over 35 will not be eligible.
Is it better to have a longer fixed rate mortgage?
Longer term home loans are a double-edged sword because they reduce monthly payments by spreading the loan over several installments, but they also increase the amount of interest you pay over the term.
Times Money Mentor can help you choose a mortgage with this comparison tool.
Find mortgage offers
- Find and compare mortgage offers.
- It only takes a few minutes and no personal information is required for research.
- Talk to a mortgage broker when you’re ready.
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So, for example, if you’re a first-time buyer with a Â£ 200,000 mortgage paying an interest rate of 2.2%, your monthly payments would be Â£ 867 over 25 years. If you took the same loan at the same interest rate but for 40 years, you would pay Â£ 627 each month.
However, your total interest payments would be Â£ 60,200 over 25 years, or Â£ 100,000 over 40 years, making the longer term loan around Â£ 40,000 more expensive.
This example does not take into account the fact that people who choose a fixed contract for a maximum term of 40 years will pay a higher interest rate than those who choose shorter contracts. This means that they are facing a double whammy in terms of overall loan expenses.
Long-term fixed rate mortgages are generally only available to people with large deposits, meaning they have generally not been useful for first-time buyers who often can only extend to one. 10% deposit.
While Habito’s loans are available to people with 10% deposits, its rates at this end of the mortgage market vary between 4.39% and 5.35%, making them expensive.
If you were to lock in the rate at that level and stay on that mortgage for the entire term, you would miss out on cheaper interest rates that would be offered to you as you accumulate more equity in your home.
Learn more: Different Types of Mortgages, Which One is Right for You?
What’s good about a long fixed rate mortgage?
As already mentioned, one of the good things about a longer term fixed contract is that your monthly repayments are predictable. This means you don’t have to worry about what’s going on in the mortgage market at large and effectively protect you against rising interest rates.
If you had a five-year contract, for example, and interest rates rose during that time, when you switch to a new contract, you may have to pay a higher rate than you are currently at. .
People with shorter term deals also have to shop around every few years, which can be time consuming and expensive. This is because most offers come with a product or exit fee, which typically costs around Â£ 1,000. If you were to change 10 times over 35 years, that adds up to Â£ 10,000 in additional fees that you may have to pay on top of your mortgage.
If you pay a mortgage broker every time you switch to a new business, the exit fees can also run up to thousands of dollars over the life of your loan (but keep in mind that you can get mortgage advice for free).
By choosing a long-term fixed rate mortgage, you no longer have to worry about these additional costs.
Learn more: Guide to 5% mortgages