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In a fix: would you fix your mortgage for 10 years?
Because if you wanted to, it’s now a possibility. A handful of lenders have introduced mortgages with a fixed term of 10 years, and the good news is that the rates attached to them are far from astronomical.
New fix on the block
Nationwide is the latest lender to offer a 10-year fixed rate mortgage, which will be available to buyers with a 15% deposit or homeowners with 15% equity. For a 70% loan to value (LTV) mortgage, the interest rate will be 3.49%, while an LTV of up to 85% will cost around 4.54%. So as well as the product itself being unusual today, the relatively competitive rate of interest attached to it is as well.
And Nationwide isn’t the only lender offering buyers and homeowners the chance to fix for a decade. Other financial service providers to do so are Woolwich – Barclays’ mortgage business – and West Bromwich Building Society. Both of these products have interest rates starting at below 4%.
Are you ready to commit?
If you’re thinking of buying a new home or remortgaging, there are pros and cons to choosing a fixed rate mortgage of 10 years:
- Long-term security – if rates go up, yours won’t
- Peace of mind – you know exactly how much you’ll pay each month, which may make managing your budget easier
- Competitive prices – it’s unusual to see long-term fixed rate mortgages priced as low as these new products
- Portable – while you might not want to commit to staying in one house for ten years, these mortgages are portable so you should be able to take them with you if you move (although check the small print).
- No rate drop – if the Bank of England base rate drops, the amount you pay won’t
- Paying more – typically, fixed-rate mortgages are attached to a higher rate of interest than variable loans to negate any rises to the base rate. With the Bank of England rate currently so low, you may find more competitive deals on variable rate mortgages
- Penalties – If you do decide to switch to a different mortgage during the ten years of your fix, you’ll probably be charged – and the amount you pay could be hefty.
Time to fix?
The Bank of England’s base rate of interest – upon which lenders set their rates – has been at 0.5 since 2009, and while there has been talk of it being increased slightly next year, commentators do not believe this will occur ahead of the 2015 General Election. This means that variable mortgages should remain competitive for some time to come.
However, variable rate mortgages lack the security that comes with a fixed: the knowledge of exactly what you will pay every month whatever happens. And for some homeowners this is the priority – even if it means spending a little more than they would for a different mortgage.
Even if the base rate does not increase for the next few months, or even a year, it is almost certain that it will rise at some point in the next ten years. So, by fixing for a decade now there’s every chance you could save money at some point.
If you’re still unsure what to do, you could speak with a mortgage broker like Ocean. They can search close to the whole of the market to look for a deal that suits your circumstances.