The mortgage market has seen some changes since the 2008 recession, long term security has become a priority. Mortgage lenders are being asked to promote long term fixed rate mortgages because more homeowners are beginning to struggle on variable mortgages. With loans having fixed-rate terms of 20-25 years or even more. It won't be long now before fixed interest packages become the most popular in the UK.
Now is a great time to consider a fixed rate mortgage because rates are at such a low level because the Bank of England has lowered the base rate in order to free up more capital for borrowers, and they may be getting lower. If you're in the market for your first mortgage or remortgage at a lower rate than what you're currently paying, now is the time to consider a fixed rate mortgage. However if you go for a long-term fixed rate, you will be paying more right now. But should interest rates rise during the next few years then you may end up with a better overall deal, also your repayments will always be protected from any future rate increases as you are on a long term fixed rate.
There are nearly 20 different fixed rate deals available for house buyers with only 5% to put down, this is a massive increase compared with last year, choices for buyers wishing to make a 15% deposit has increased nearly twofold. The number of 90% (LTV) loan-to-value mortgages has risen over 100% also.
The Yorkshire building society has recently launched a mortgage with an interest rate fixed at less than 5% for the next 10 years; this is in a bid to attract borrowers wanting the security of knowing what there payments could be during uncertain economic times, the rate on its 10-year fixed-rate loan has been reduced to 4.99%. The mortgage can be used for buying a new house or remortgaging, however there is a fee of £995.
The good news for buyers is that long term fixed rate mortgages can be found often with rates as low as 4.5% for the next few years. While this may not sound particularly low or long term the predictions are that rates will continue to fall and the length of the fixed term is expected to increase.
It is wise to overpay or save some money during the duration of your fixed rate mortgage to help you to meet any higher repayments, although you can always opt for a short-term fix with a lender offering a cheap reversion rate. But remember that if interest rates go back up, there may be a large increase in your monthly repayments when your fixed rate deal expires because at the end of the deal everyone reverts back to the same rate(Standard Variable Rate SVR). Getting out of the fixed rate mortgage before the fixed rate term has expired can prove to be very costly because of the penalties attached. With Long Term fixed Rate Mortgages you don't necessarily always pay at above the actual base rate. Because rates are so low at the moment this is what's happening.
When interest rates are high lets say 7-8% you are likely to get a 5 or 10 year fixed rate of maybe 6%. There will always be a temptation to delay your decision to fix until you think that interest rates have bottomed out, but unless you are monitoring the market very closely you risk interest rates rising before you've actually made your mind up.
.Fixed Rate Mortgages advantages:
* You know what your payments will be in the long term from month to month
* The monthly interest payment is fixed over the life of the term of the mortgage (No matter how high market interest rates go up).
* Fixed rate also means protection from interest rates rises
* Depending on your financial goals, you can schedule to pay off your home loan or mortgage between 10 and 30 years.
Fixed Rate Mortgages disadvantages:
* paying off your fixed rate mortgage could be troublesome and expensive as you may be subject to an early redemption penalties, which can be costly.
* Tie-in periods can be extensive with a fixed rate. You will have to keep repaying the mortgage to the same lender for a set period of time even after the fixed rate mortgage period has ended and reverts back to a standard variable rate, or pay an early repayment charge.
*With a Fixed Rate Mortgage you will be tied into your set higher interest rate even when rates are low until the end of the agreement.
* You won't see any decrease in your monthly repayments.
* Some studies have shown that a standard variable rate mortgage is a cheaper alternative to long-term fixed rate financing.
*In the UK there are some limits placed on the terms of a fixed rate mortgage for first time buyers and residential buyers e:g term rates may be a maximum of 10 years.
Mortgage Fees
Britannia Building Society have a 'market leading' rate of 3.99% for 75% LTV however with £999 fee, it seems lenders are trying to recoup some of the savings homeowners can get by switching mortgage, remember also the smaller the mortgage, the more noticeable the fees will have on what you can save!
At the end of the term borrowers usually convert to the standard variable rate mortgage.
Fixed-Rate Mortgage is it for you:
* Do you prefer regular payments?
* Do you live by a strict budget or are on limited or fixed incomes?
* Plan to stay in your property for a while?
If you apply for a mortgage or remortgage do it when interest rates are low.