Would you fix your mortgage for four decades?
Mon 22 Mar 2021
Paul Bennett, Director
Did you read that a new mortgage has become available, whereby the borrower can fix in to the same rate of interest for 40 years? Lender Habito has launched the longest fixed-rate product on the market – with 480 identical monthly payments. Are you tempted?
Why are fixed-rate mortgages so appealing?
Fixing the rate of interest applied to your mortgage protects the monthly payment from fluctuating. Although a mortgage’s rate of interest and the Bank of England’s interest rate are two different things, they are linked. If the Bank raises the interest rate, mortgages rates for those on tracker and variable-rate mortgages will rise, making the monthly repayment more expensive. Borrowers on a fixed-rate mortgage, however, enjoy peace-of-mind that their repayment will not change, even if the interest rate doubles overnight.
A recent interest rate history lesson
Many of today’s younger borrowers will be unaware that in 1979, the interest rate hit an all-time record high of 17% - almost unimaginable when you consider today’s historic low rate of just 0.1%. Many homeowners without fixed-rate mortgages were unable to afford their spiraling repayments and thousands of properties were repossessed by banks. For those who lived through this period, the appeal of a long-term, fixed-rate mortgage remains.
What goes up….
The reverse of doubling can also occur and interest rates can tumble. In 2007, interest rates climbed quickly to 5.75% and many borrowers fixed their mortgage rate to prevent further hikes to their repayments. The financial crash, however, sent interest rates plunging and they have been on the decline ever since. This left some fixed-rates customers paying well over the odds for their mortgages, while those on tracker and variable deals found their repayments drastically reduced. As a result, it has become normal to fix a rate for between one and five years, giving the borrower the flexibility to switch to a different, cheaper product.
Why might a long-term fixed mortgage suit you?
Super-long fixed rates shouldn’t be dismissed out of hand, as they offer benefits to some borrowers. You may consider fixing for ten or more years if: -
You often find yourself on a lender’s standard variable rate, as you forget to switch to a new product when a short-term deal ended
You are risk-averse and like the certainty of knowing what your repayment will be, despite how interest rates might behave
You’re are nervous about the wider economic future
You need a long time to repay a mortgage
You need to precisely budget for the future
You are confident you’ll be in employment for the duration of the home loan
Always ask the mortgage lender or your financial adviser:
Whether the size of your deposit will influence the fixed rate you’ll be offered
How much interest you’ll be paying back over the term, when compared to a traditional 25-year mortgage
How much the mortgage arrangement fee is and whether it’s automatically added to your loan
If you can you leave the product at any time and if so, are there any early repayment charges
If you can you make overpayments and if so, whether there is a charge for the facility
Whether you can reduce the term of the mortgage at any time and if so, are there any penalties for doing so
The choice of mortgages available today is outstanding and there really is a home loan for every buyer – now including the Government-backed 5% deposit mortgages! If you’d like any buying advice, please contact Behr & Butchoff today.