Everything you need to know about seven-year fixed-rate mortgages
If you're looking for a fixed-rate mortgage, deciding how long you want to fix for is one of the most important questions. Short-term deals often offer very low interest rates but long-term products give you stability and security over five or ten years.
Now, a new pair of seven-year fixed rates have come to the market and both offer exceptionally good value for money. We look at these new deals and weigh up the pros and cons of a seven-year fixed rate.
Leading lender launches two excellent seven-year fixed-rate mortgage deals
If you're looking for long-term stability, a seven-year fixed rate could be the perfect solution. Now, a leading lender has launched a pair of seven-year deals, one of which offers a pay rate of less than 2%.
Coventry Building Society has launched two seven-year fixed rates, designed to appeal to borrowers looking for security. The lower rate is at just 1.99% and is available to a maximum loan-to-value of 50%. The second deal is at 2.55% and is available up to 85%, making it ideal for first-time buyers with a 15% deposit. Both deals have a £999 arrangement fee.
Coventry also offers ten-year fixed-rate deals, including a 2.49% product available to 65% loan-to-value.
The Daily Telegraph says that “being able to fix at 1.99% for seven years is unprecedented; it was only in January that five-year fixed rates dropped below 2%”.
The pros and cons of a seven-year fixed rate
The ability to fix at less than 3% for the long term is hugely appealing. It ensures that you know exactly what your payments will be well into the next decade and as the rates are so low you're locking in to a very competitively priced product.
If you are looking to minimise your payments, however, then a short-term deal may be more suitable. With interest rates likely to stay low for the foreseeable future, two-year fixes are currently much cheaper - they start at just 0.99% - and therefore offer lower initial repayments.
The Telegraph reports that in terms of monthly payments, the one percentage point difference between Coventry’s seven-year offerings and the cheapest equivalent two-year deals would be around £150 a month on a £300,000 mortgage.
The other factor to take into account is that long-term fixed rates also come with early repayment charges. If you want to repay part or all of the mortgage early, you will generally face substantial penalties for doing so.
While many of these deals are portable - meaning you can switch them onto another property if you move home - you should always bear in mind that it is by no means a guarantee that your lender will agree another mortgage for you in the future. If your circumstances or the lender's criteria have changed you may not be eligible for a loan and end up paying the early repayment charges anyway.
If you're unsure about what the future holds, a shorter-term product may be more suitable.