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Is a 10 year fixed rate mortgage a good idea and should you get one?

10 Year fixed rate mortgages have been reducing significantly in cost, and for the first time in the UK it’s now possible to get a pretty competitive rate fixed for 10 years but the big question is; should you get one?

Question 1- Is a fixed rate even appropriate for you?

Forget 10 years. Should you even have a fixed rate mortgage?

Lots of people are caught out by significant early repayment penalties due to not properly considering the question of their long term plans before buying.

Will you be moving home, repaying large balances early, hoping to raise significant additional finance from the property or could you be eligible for better deals in the short term if your own circumstances improve?

Before even considering a fixed rate mortgage you should take a look at our guide to fixed rate products and see how they work versus other types of rates, and pay real consideration to whether the points above could leave you paying redemption penalties of many thousands of pounds.

You should definitely speak to an independent mortgage broker like us as well.

Question 2 – Will fixing for 10 years be competitive long term?

If you had a crystal ball you could answer this question, but no one can see into the future.

When a lender prices a product it’s either based on the cost of loaning that money from another bank or investor and turning it into mortgages or on the expected rate of interest they will pay to their own depositors over that time.

So the simple fact is that a fixed rate mortgage will be priced based on the expectations of what will happen to interest rates over the term and the Bank will be expecting to profit.

That means the current glut of competitive long term fixed deals indicate that the banks expect a prolonged period of relatively low interest rates in the UK well into the future.

So like odds given by bookies, most banks won’t be expecting average interest rates over the fixed period to be higher than the rate they are offering you. So you are in effect betting against the bank, but they have to be known to be quite spectacularly wrong in the past.

The smaller your mortgage though, and the shorter the remaining term (for someone on a repayment or capital and interest mortgage) the less differences in rate will impact long term cost.

Because of this for each loan there will come a point as remaining term decreases when small differences in rates are outweighed by the repeated fees and charges involved in refinancing a mortgage, and changing product regularly becomes poor value for money.

This is very case specific, but once your mortgage reaches that point the potential downsides of long term fixes may become insignificant.

Question 3 – So who should take a 10 year fixed rate mortgage?

If you are very worried about increases in costs, have no circumstances that would indicate other rates like variables could be preferable, and very sure that the early repayment penalties won’t be likely to cause an issue then you just need to decide whether you feel it’s worthwhile gambling long term and risking paying more than you might need to or whether to take a short term product in the hope that you can secure another competitive rate again in a few years.

This decision is mainly going to come down to the margin between short term fixed rates and long term ones and the probability that changes to your own circumstances make better deals available to you in the short term (such as better income making more competitive lenders available, or works to a property decreasing your loan to value), and whether you feel the additional cost is good value for the extra security.

A mortgage advisor such as ourselves will discuss your circumstances with you and give guidance on whether a fixed product is really more appropriate for you. If a fixed rate is the best option for you, but it comes down purely to a decision between long and short term deals then this is very much a decision best made by the customer, but at least we can present to you the best options available over the different periods so you can make a more informed decision between them.

If you’d like to know what the best deals available to you both in the short and long term could be then complete out enquiry form and an advisor will contact you, to discuss your options and provide you with advice.

Mortgage Broker Q&A. Interest only or repayment mortgage?

Question; what are the pitfalls and benefits of an interest only mortgage?

They say life is all about risk, and this question is a prime example.

If you want the certainty that your mortgage will be repaid as long as you keep up your payments then you should definitely take a repayment mortgage.

However if the cost is too high in the short term however you could take an interest only mortgage and move to a repayment mortgage later although you should be aware that interest paid will be dead money and not reduce your debt.

If you take an interest only mortgage in the long term you are gambling that by investing wisely you can outperform mortgage interest rates on your investment return and produce a surplus by the end of the mortgage. However if your investment does not perform as planned then there will be a shortfall which you will have to find elsewhere.

It should be remembered though that your investment will not only need to outperform mortgage interest rates as you will pay interest on the full balance of the mortgage for the full term. Whereas if you took a repayment mortgage the capital part of your payment would gradually reduce the interest element and so like for like you will repay more interest over the term on an interest only basis as well.

As always for more information about what type of repayment would be best for you and to speak to a UK mortgage advisor call 08454594490.

Mortgage Broker Q & A. Interest only or repayment mortgage?

In Q & A we take a look at some of the questions mortgage advisers deal with on a regular basis.

Question; what are the pitfalls and benefits of an interest only mortgage?

They say life is all about risk, and this question is a prime example.

If you want the certainty that your mortgage will be repaid as long as you keep up your payments then you should definitely take a repayment mortgage.

However if the cost is too high in the short term however you could take an interest only mortgage and move to a repayment mortgage later although you should be aware that interest paid will be dead money and not reduce your debt.

If you take an interest only mortgage in the long term you are gambling that by investing wisely you can outperform mortgage interest rates on your investment return and produce a surplus by the end of the mortgage. However if your investment does not perform as planned then there will be a shortfall which you will have to find elsewhere.

It should be remembered though that your investment will not only need to outperform mortgage interest rates as you will pay interest on the full balance of the mortgage for the full term. Whereas if you took a repayment mortgage the capital part of your payment would gradually reduce the interest element and so like for like you will repay more interest over the term on an interest only basis as well.

THINK CAREFULLY BEFORE SECURING OTHER DEBTS AGAINST YOUR HOME. YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE OR ANY OTHER DEBT SECURED ON IT. YOU DO NOT HAVE TO PAY A FEE FOR OUR SERVICES AS WE RECEIVE COMMISSION FROM LENDERS. IF YOU PREFER YOU CAN PAY 1% FEE ON COMPLETION AND WE WILL PAY ANY COMMISSION WE RECEIVE TO YOU. SOME BUY TO LET AND COMMERCIAL LOANS ARE NOT REGULATED BY THE FINANCIAL CONDUCT AUTHORITY
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