Your home may be repossessed if you do not keep up repayments on your mortgage.
Last month both Lloyds Bank and Halifax launched 10-year fixed rate mortgages. There is talk that since the decision to raise the base rate in Aug to 0.75%, longer fixed rates may be looked at.
However, anyone looking at a long-term fixed rate should consider the following:
Advantages of a 10-year fixed rate
Avoid any future interest rate rises-Base rate rises are predicted in the future so a long-term fixed rate will give you the guarantee of paying the same amount regardless of how much interest rates rise.
Potential lower LTV rate-If your property has a lower LTV rate you’ll be able to get a better mortgage deal. So, if you were on a shorter fixed rate term, and house prices dropped before you re-mortgaged, your LTV would increase, and you wouldn’t be able to get the best mortgage rates. Any short-term drops in the market are protected by longer term fixed rates.
Not paying lots of mortgage fees-If you took out five 2 year fixed rate deals over 10 years you will pay 5 lots of mortgage fees, quite a large amount of money.
Disadvantages of a 10-year fixed rate
Higher monthly payments-If base interest rates don’t rise for a while, or get cut further, you could end up paying more than if you’d been on a tracker or standard variable rate mortgage.
Penalty payments- If you want to get out of a fix early you’ll often have to make some large penalty payments. These are at their most severe in the early years.
Extra charges if you pay mortgage off early- If you want to make substantial overpayments on your mortgage, or you have a windfall over the next 10 years – for example, through an inheritance – and want to pay off your mortgage in full, you'll again face hefty early repayment charges.