Earlier this year, Virgin Money launched a 15 year fixed rate mortgage which was referred to as a ‘Brexit Proof Mortgage’. Since then, it has been reported that 10 year fixed rate mortgages are at the lowest level they have ever been.
Longer term fixed rates may seem like a good idea, especially with mortgage rates being low. However, there are some key issues to consider before adopting this approach in order to avoid potential costly mistakes.
Should I Fixed For Longer?
Some of the points to consider are cost, flexibility and your future plans.
Longer term fixed rates provide longer term stability, but this comes at a premium when compared to fixed rates with lower benefit periods (i.e. 2 – 5 years). This needs to be considered along with the associated fees (both now and in the future) when comparing mortgage products.
Another key point is early repayment charges. Typically, these last for the duration of the fixed rate so you need to be confident that you will be keeping the mortgage for a certain amount of time. There has been some innovation in the sector with some providers offering 10-year fixed rates, but only have penalties for the first 5 years. These products have their place, but usually come at a premium when compared to locking in for the full fixed rate period.
Future planning is also key, especially when considering the flexibility. Are you likely to move in the future? If so, you will need a mortgage that is portable and remember the key points around porting a mortgage. Would you like to repay your mortgage early? If so, the overpayment facility and early repayment charges need to be considered when comparing products.
We have seen an increase in popularity with longer term fixed rates, especially from those planning to remortgage and with no plans to move.
It’s safe to say that rates will go up at some point. When and by how much? Many will predict, but it’s certain that nobody knows.
The important thing is to be clear on your own individual plans, goals and objectives. From this starting point, you can make enquiries, seek independent advice and make good informed choices from there.