The pros and cons of a long-term fixed-rate mortgage
Over the last few years, the vast majority of borrowers have elected to fix their mortgage payments. And, thanks to record low interest rates, many people are choosing a 'long-term' fixed-rate deal, which is generally defined as five years or longer.
Fixing your mortgage for a long period can give you peace of mind but there are some factors you should consider.
The advantages of fixing your mortgage for five years or longer
Fixing your mortgage gives you the pace of mind of knowing exactly what your repayments will be for a specified term. A long-term fixed rate helps you to budget and ensure your payments remain stable for five years or longer.
Whatever happens to interest rates, you know exactly what you will pay for five, seven, 10 or even 25 years. This is particularly useful in an environment where interest rates are expected to rise in the future. Taking a long-term fix means that you can protect yourself against future hikes in the base rate.
Considering that many long-term fixed rate deals are very competitively priced, a long-term deal also lets you take advantage of lower repayments for a long period.
Most long-term fixed-rate mortgage deals are 'portable' and so you can generally take them onto a new property if you decide to move home during the fixed-rate term.
What you should weigh up if you are considering a long-term fixed-rate mortgage
A long-term fixed rate will give you peace of mind that you are protected against rising interest rates. It will also allow you to lock-in to low repayments for a long period.
However, there are some factors to take into consideration if you want to choose a long-term deal.
Firstly, if you want to reduce your mortgage repayments to the very lowest level from the outset, there may be more competitive deals available. Short-term fixed rates (typically two to three years) generally offer lower initial repayments while there are also lots of variable deals on the market which have low starting rates.
Secondly, committing to a long-term fixed-rate deal can be an issue if your circumstances were to change in the future. For example, if you take out a 10-year fixed rate a lot can change in that time. You could move jobs, have a family or separate from your partner.
Fixed rates generally come with high early repayment charges meaning that if you want to come out of the deal you could face a fee of several thousand pounds. If your future is uncertain then committing to a long-term deal may not be the right solution for you.
In addition, if you need to move home or borrow more money during the fixed-rate term, you will find your options hugely reduced. There is no guarantee that your lender will agree another mortgage with you in the future as either your circumstances or their criteria may have changed. And, even if they can lend, their products may not be the most competitive in the market.