Welcome to my new monthly column where I will be looking to give
readers insight into the complicated process of buying a home.
I will also be considering some of the
factors that should be taken into account when deciding what mortgage best suits you, to ensuring that you and your home are adequately protected should the unexpected happen.
This month I’m going to look into the potential benefits of longer fixed rate
mortgages. Whether you are a first time buyer, moving home or your existing
rate is coming to an end, you will have a host of options in regards to what mortgage rate suits your circumstances.
Fixed rates generally increase in terms of percentage the longer the fixed rate period runs for. This is because a fixed rate is designed to give the borrower certainty that their mortgage payments will remain the same and not change for a designated period of time. You pay a premium for the additional peace of mind that the fixed rate gives.
Fixed rates will almost certainly have an Early Repayment Charge (ERC), this is the fee that is paid if you were to pay off your
mortgage early in the event of selling your home. So if you were only considering having the mortgage or living in the home for a short period of time then a longer term fixed rates wouldn’t normally be considered.
If you however are intending staying in your property for the foreseeable future – five years plus – then a fixed rate mortgage for this period should be considered, although these would be more expensive initially than a two year fixed rate for instance, when you factor in the potential costs in two years of
renewing your mortgage rate and the
possibility that the rates available at this time could be higher, then that initial saving could evaporate.
Five year fixed rates have recently become more attractive as lenders have all lowered their interest rates on these deals. Also, the return to the market of seven and ten year fixed rates indicate that lenders do not expect to see any great changes in interest rates in the foreseeable future. However, with the economy being so unpredictable can anybody take the risk of interest rate increases?
If you would like to discuss your individual circumstances then please feel free to call us to book a free mortgage and insurance review on 01872 810711.
n This article does not provide individual financial advice and are the views of the columnist only. James Miller & Associates is an appointed representative of Vision Independent Financial Planning Ltd, which is Authorised and Regulated by the Financial Services Authority.