Posted on 19 January 2017 by
If you’re an older, wiser, more settled borrower could you benefit from a longer term on your mortgage deal? We think you could, but it’s important to be mindful of those exit penalties.
If you’re concerned about what’s happening in the world with Brexit and the Trump effect and you’re an existing homeowner now could be the perfect time to lock into a low long-term interest rate. You could sail through the next few years safe in the knowledge that your monthly mortgage repayment won’t rise and there’s never been a better time to take control and lock in to an attractive 10-year fixed-rate deal.
The number of 10-year fixed-rate deal available on the market has risen from just eight three years ago to more than 120 now. In the same time the average interest rates on such deals has fallen from 4.2% to 3.2%.
10-year fixed term mortgage deals can make sense for more mature borrowers looking to remortgage, but might not be suitable for those who are younger and less established on the property ladder, as they often come with high early repayment penalties.
Alistair Hargreaves's comments “With protracted Brexit negotiations likely in 2017, we are recommending customers lock into a five- or 10-year fixed rate sooner rather than later. The Forthcoming French and German elections could add to the economic uncertainty, while many unknowns exist as to what will happen during a Trump presidency. With such rates at virtually historical lows, we’re urging our customers take a look at the long term fixed rate deals that are available and act now to protect themselves against likely rate increases.”
What are the benefits of locking in to a long term mortgage deal?
1. You’ll know exactly much your monthly mortgage is going to be for the next decade - no matter what happens to the Bank of England base rate, which is clearly attractive – but there is a premium to pay.
2. You don’t have to go through the rigmarole of remortgaging every two years – saving you from fees and potentially facing potentially higher interest rates. Most 10-year deals require a large deposit and some lenders require a deposit of 50%, but with arrangement fees, typically around £1,000, there’s little or no different to the fees borrowers have to pay from that of a two-year deal. So if you keep bouncing from one two-year fix to the next, you’ll pay around £5,000 in arrangement fees over a decade compared to the one-off £1,000 on a 10-year deal.
What is the drawback?
1. The typical homebuyer is likely to move three times before they hit 45 - and most people move at least eight times over their life. So locking into a very long-term deal whilst young might not be the most sensible option.
2. Early repayment fees - the biggest drawback to taking out a long-term fix, however, is what happens if you need to break it for any reason, such as redundancy, divorce or a job move. Any early repayment charges can be shockingly high, even after many years of paying off a loan. For example, some mortgage lenders charge 6% of the amount borrowed if a homeowner quits the mortgage any time within the 10- year period. If you borrowed £150,000 that could mean you’d have to pay back £18,000.
But not all long term fixed rate mortgage deals have high exit fees. Some lenders are more forward thinking and offer sliding scales that start at 5% in year one and then drop to 1% from year five through to year 10. You could also take your 10-year deal with you when you move home. Nearly all the mortgages offer portability from one property to the next.
Who are the ideal candidates for long-term fixed rate deals?
If you’re in your mid 40s or older, have a decent amount of equity, children in secondary school, a relatively safe job and you’re unlikely to move in the future it may be worth considering a 10 year fix.
Interested in longer term fixed rate deals? Check out our best buy fixed rate deals or call us now on 0344 346 3672.
The blog postings on this site solely reflect the personal views of the authors and do not necessarily represent the views, positions, strategies or opinions of John Charcol. All comments are made in good faith, and John Charcol will not accept liability for them.