What about 25 yr fixed rate mortgages?
Today's interest rate fluctuations are a worry for any mortgage holder and the uncertainty of the UK economy is even more worrying. When it comes to choosing a mortgage, the interest rate, the products, the penalties to pay, the choices seem for ever endless. So making the correct decision which could lead to a 30 year fixed rate commitment is not one to be taken lightly but with a 25-year fixed rate deal, this is exactly what youll be doing. But is it wise to tie yourself in for the life of your mortgage and more?
Well the UK Chancellor certainly seems to think that this is just the answer to the stability that is required in the UK mortgage market and may be just the answer to the financial difficulties and the hard times that the mortgage holders are experiencing. The Chancellor has recently given his backing to plans for widening the availability of long term mortgage fixed rates but the 25 year fixed rate market remains a pretty niche market with only a few lenders getting in on the act. With interest rates currently on an upward trend, fixed-rate deals have become much more popular in the past year or so, as borrowers have sought to protect themselves, for a while at least, against further increases.
25 Yr Fixed Rate Mortgages?
Theres no doubt 25 year long-term mortgages are more expensive than many current shorter fixed-rate deals but there are some competitive deals out there if you like the idea of fixing your rate over the longer term. If you go for a long-term fixed rate, you may be paying a little over the odds right now but should interest rates rise over the term of your mortgage then you may end up with a pretty good deal overall. Whats more, your repayments will always be protected from any future rate hikes and youll never have to worry about payment shocks!
But second guessing movements in interest rates is a gamble and youll need to think twice whether a long-term fixed rate could work to your advantage before you take the plunge. So, whats on offer now? Most importantly, 25 year fixed rates should all be portable which means that when you want to move house you can take your mortgage with you and if youre thinking long term, make sure that your mortgage will go wherever you go.
Pay particular attention to the tie-in period as penalties may have to be paid on redemption of the mortgage. I discussed earlier that this type of mortgage involves a 25-year commitment but this isnt always the case. In fact, only some lenders will apply an early repayment charge (ERC) which lasts throughout the entire 25 year period. Most other lenders will allow you to switch after ten years without an ERC. Whats more, if interest rates are higher after the tie-in period has ended, youll have the option to stay put and continuing enjoying the same fixed rate.
That said, the initial ten years is a long time and its difficult to anticipate your needs, wants and changing circumstances for such an extended period. What happens if you lose your job, become ill or your relationship breaks down? But, on a more positive note, this could be offset by the thousands £££'s you could save in legal, valuation and arrangement fees, because you wont have the expense, not to mention the hassle, of continually re-mortgaging every few years to chase new competitive deals. It is true that long-term 25 year fixed rate mortgage
rates wont suit everyone, especially those of us who need more flexibility but they do have their place and if you dont want to worry about interest rates and constantly re-mortgaging, the stability they offer could be right up your street.
As mentioned earlier, with interest rates currently on an upward trend, fixed-rate deals have become much more popular in the past year or so, as borrowers have sought to protect themselves, for a while at least, against further increases. Fixed deals currently account for about 89% of first-time buyers mortgages and 73% of deals for existing home owners who are moving. And of the total stock of mortgages, about half are now fixed deals of one sort or another. but most are of the two, three or four-year variety. Be wise! Be warned!
