Short-term mortgages such as two or three years are quite popular in the UK. But that doesn’t mean that longer-term mortgages aren’t available. Are there any benefits to a longer-term fixed rate mortgage, for say five or ten years, or longer? Read on to find out.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.
Understand the difference between terms and deals
One thing that you must learn if you wish to fully understand your mortgage options is the difference between ‘deals’ and ‘terms.’
A mortgage term refers to the loan’s lifespan, or how long it will take to pay off the entire mortgage. Historically, a 25-year mortgage term has been the standard for first-time homebuyers, but with house prices on the rise, many are opting for a 30-year term or longer.
With a deal, the amount you pay will vary over the course of your mortgage. The most popular options for fixed-rate deals are two, five, and ten years with the interest remaining the same for the entire period. Usually, when your initial deal ends, most homeowners will switch to a new fixed-rate deal to avoid their rate changing to the standard variable rate, a rate which will almost certainly be higher than your initial one.
Even if your mortgage term is 30 years long, you can take out a new fixed-rate deal every few years. How often you do this will depend on a variety of factors. Do you think rates will drop significantly in two, five, or ten years time? Trying to guess how the rates will behave in the future could be a fruitless endeavour normally, but at the moment with rates unusually high to combat inflation, there’s a good chance rates will be lower by the time your deal ends.
Is a longer-term mortgage right for you?
Longer-term mortgages might not be right for everyone. They require large deposits so they won’t be ideal for most first-time buyers as many struggle to even come up with a 10% deposit. Additionally, locking into a high rate for a longer term means you could miss out on better interest rates.
One of the biggest benefits of a long-term fixed rate mortgage is the stability it provides. Locking in a long-term rate means your payment will remain the same throughout the deal. You won’t have to worry about market fluctuations and you’re protecting yourself against interest rate hikes.
Another upside is that you don’t have to search for a new deal every few years, a process that can be time-consuming and sometimes confusing. You have the option to switch to a new deal with your current lender which could save you both time and money. Plus, securing a long-term mortgage deal means saving on lender fees.
There are some downsides, though. If you secure a long-term mortgage when rates are high, you’ll be locked into that rate and could face years of paying more than you have to. This is the situation right now, with the Bank of England predicting that rates will drop over the next few years.
Some banks also impose age limits on long-term mortgages to avoid the possibility of a borrower repaying into their retirement. Don’t forget about exit fees that are associated with switching your mortgage before the term ends — if you can’t afford to cover them if you want to switch, you’ll be stuck with your mortgage term.
Ready to explore your options?
Deciding which kind of mortgage is right for you can be difficult, especially if you attempt to go it alone. Working alongside a professional can help make the whole process smoother. The experts from Dental & Medical Financial Services are here to provide the guidance and advice you need to make the best financial decision. To learn more about your options and to ensure your mortgage aligns with your personal financial goals, get in contact with us today.