Halifax and Lloyds Bank recently became the latest lenders to launch 10-year fixed rate mortgages, with rumours suggesting that even longer fixes may soon be on the horizon.
The move comes after the Bank of England rose the base rate to 0.75%, sparking fears that it could rise further in future.
In recent years, two-year mortgage deals have been the most popular amongst both home buyers and those looking to remortgage, but this shift to longer fixes is likely to be welcomed by those looking for security and predictability.
Wondering if a 10-year fixed rate mortgage is right for you? Let’s take a look at the pros and cons.
What are the benefits of a 10-year fixed mortgage?
Save on costly mortgage fees
When you switch from one mortgage deal to another, you’ll often be required to pay a series of fees to do so. This can be the case even if you wait until your fixed rate period is over before moving to a new deal.
Therefore, switching mortgage deals every two to five years can obviously see you having to pay these fees more frequently. If you were to have five consecutive two-year deals over a period of 10 years, this could set you back thousands of pounds.
Avoid potential interest rate rises
In November last year, interest rates rose for the first time in a decade and since then, borrowers with flexible mortgages or deals on their lender’s standard variable rate (SVR) may have seen their repayments increase. With the help of a 10-year fixed mortgage, borrowers can avoid potential interest rate rises for an entire decade. You’ll know exactly how much your repayments are each month and will be able to factor these costs into your budget.
Protect yourself from changes in lenders’ criteria
All lenders have a set of criteria that they take into account when deciding whether or not to approve a mortgage application. This criteria can vary from lender to lender but will often look at things such as credit history, income and existing debts. If you were to opt for a 2-year fixed rate mortgage, once you come to remortgage at the end of your fixed rate period, lenders will assess how you weigh up against their criteria. Even if you choose to remortgage with the same lender you had previously, this won’t necessarily protect you from rejection.
What are the potential downsides of a 10-year fixed rate mortgage?
Your monthly repayments will be higher than they would on a shorter term fix
Although long term fixes reward you with the security of knowing exactly how much your repayments will be, lenders need to make money some way and they do that by charging you more than they would on a shorter term deal. Therefore, you’ll need to weigh up what’s more important to you - short term savings or long term predictability.
If you move home within the 10-year fixed period, you may have to pay a penalty
If you move home before your fixed period is over, you may face early repayment charges and these could be as high as 7% of your remaining mortgage debt. Some lenders will let you ‘port’ your mortgage and save money, but there are no guarantees.
You may miss out on better deals if interest rates fall
If interest rates fall, you’ll still be tied into your fixed rate period and you won’t experience the financial benefits of a lower rate. Nevertheless, if you’re looking for security and you want to avoid your repayments increasing in the next few years, this could be a risk worth taking.
Wondering which mortgage deals are available to you? Please get in touch with the team at TaylorMade today. Our mortgage brokers can assess your financial situation and point you in the direction of the lenders most likely to approve your application.