Don’t rush in to long term fixed rate deal
September 27, 2007 by admin
Filed under News, News-Mortgages
Gordon Brown’s new cabinet has been pushing the issue of longer term fixed rate mortgages in the light of decreased affordability across the housing sector in the UK, and in response to this a number of lenders have started to offer longer term fixed rate deals, with many fixed for as long as 25 years.
The latest to offer these extended fixed term deals is the Halifax, which is offering a 25 year fixed rate mortgage set at 6.39%. The Nationwide also offered a 25 year fixed rate deal on the same rate following the government’s call for longer fixed terms.
However, consumers are being urged to think very carefully before jumping into a fixed rate deal for such a long period. The Halifax and Nationwide mortgages both charge an arrangement fee of £599 and also penalties for early repayment for the first ten years of the mortgage. Consumers are being urged to ask themselves whether they want to face the tough decision of either sticking with the same mortgage for at least a decade or paying potentially extortionate penalties for attempting to switch lenders by paying off the mortgage early.
Of course there are benefits to these longer term fixed rates, the main one being that borrowers can enjoy stable repayments and interest rates throughout the term of their mortgage without having to worry about the effects of rising interest rates. However, should interest rates fall these borrowers will be stuck with a very high interest rate throughout the term of their mortgage, or at least until they can switch mortgages without being hit by early repayment fees.
One official stated: ‘At first glance the option of a 25 year mortgage might seem attractive. Interest rates are rocketing and the cost of living is increasing, making money tighter than it has been for years. So you might be forgiven for thinking that Halifax is offering you a quarter of a century’s peace of mind. The reality of course is that rates go down as well as up – true, rates were as high as 14% 25 years ago, but they also went as low as 3.5% when the going was good.’
Tom Smith
27th September 2007
