Let’s face it applying for a mortgage can be a little bit of a minefield. All these different products, deals, lenders, banks, building societies and brokers. If you’ve got as far as deciding that you want to have a fixed rate, you may think that the hard bit is done, not quite. In this blog I will talk you through the pros and cons of both short term and long-term fixed rates.
Long term Fixed Rate Mortgages have historically attracted higher rates of interest. But that’s no longer the case. There are more and more lenders launching 10-year fixed rates, and in some cases, 15-year fixed rate mortgages. Who might these longer-term Fixed Rate Mortgages be suitable for? Well, if you require stability and to be able to budget your monthly mortgage payments across the long term, so you can sit back and relax and not worry about your monthly mortgage payments increasing, then a long-term fixed rate mortgage may be suitable for you. Likewise, if you feel that interest rates are on the rise you may want to lock into a competitive interest rate for the long term. Longer term fixed rates tend to be more suitable for people that are in a stable environment, so that you can be certain that you’re going to remain in that home for the fixed rate period. If you are a settled family, you’ve got kids at a nearby school, and you know they are going to remain in local schools for the next 5 or 10 years, then a longer-term fixed rate mortgage may be suitable for you. But what are the cons and drawbacks of a longer-term fixed rate mortgage? Well, the longer term Fixed Rate Mortgages of 5, 10 or 15 years tend to come with early repayment charges, so you could face a hefty exit penalty if you wanted to redeem your long term fixed rate mortgage before the fixed term ends.
Now let’s look at the pros and benefits of a short-term fixed rate mortgage. And when I refer to a short-term fixed rate mortgage, you’re usually looking at 2 or possibly a 3-year fixed rate deal. Now these deals offer you flexibility to be able to review your options again in the short term. So, if you’re thinking you may move again, or this particular property is just a stepping stone to your next home, then a short-term fixed rate mortgage may be most suitable for you. You also find that short term Fixed Rate Mortgages attract the most competitive rates of interest. Now let’s look at some of the potential cons and drawbacks of short-term fixed rate mortgages. The first potential con is that you will need to re mortgage more regularly, and each time you re mortgage you may incur a new set of costs or fees. Also, a short-term fixed rate mortgage may not be suitable if your circumstances are likely to change, such as a reduction in income or if you incur some adverse credit as you may not meet the lenders criteria at the point of your mortgage renewal.
I’ve talked you through both the pros and cons of short- and long-term fixed rate mortgages, I hope you found this useful. My closing piece of advice to you is to always take your time when considering your options. If you are comparing two different products, always look at the total cost of the product to make sure you’re comparing the true cost. If you’re unsure, seek some advice from the professionals such as a mortgage broker or advisor.
If you have any further questions please feel free to contact me and I will be happy to help!