In recent years there’s been an increasing number of ten-year mortgages available to buyers and homeowners looking for new home loans. Most terms are for two, four or five years, so what’s the appeal of such a long agreement and is one right for you?
As your mortgage will probably be the biggest investment you ever make, and although you can always switch to another product or provider if you’re unhappy, life is much easier if you get it right from the beginning. Deciding on the length of term that’s going to work best for you is a big part of this, so if you’re thinking about a ten-year term, you need to look at the pros and cons.
The advantages of a ten-year mortgage
A longer mortgage deal like a ten-year fix gives you as much certainty on your mortgage payments as you’re ever likely to get. You’ll know how much your payments will be, which makes it easier to budget over the coming decade. This is especially useful if you have younger children or other caring responsibilities.
You’ll be shielded from interest rate rises for the duration of the term. At the moment, lots of lenders are passing on the historically low Bank of England base rate to customers. This, combined with what could be some unsettled few years coming up, could make fixing for ten years well worth it.
The disadvantages of a ten-year mortgage
You’re also shielded from further cuts to the base rate, which could see you paying a bit more each month than you would be if you’d only fixed for two years and were more agile.
The interest rate you’ll get on a longer deal is also more likely to be higher than the one you’d get on a two or four-year product.
You might also find that the lowest interest rates are only available if you have a big deposit or low loan-to-value ratio.
Fixing for longer can mean higher fees, although realistically, if you were going to switch to a new product or provider every to or three years anyway, then this might not make much of a difference.
If you decide to terminate the deal early, you could be faced with some hefty penalty payments, especially if you make the change in the first five or six years of the term. This can also apply if you sell up or need to remortgage.
Seek advice before committing
As with any big financial decision, it’s a good idea to talk over your options with a broker or with your lender first, so that you understand your options and their implications before signing that dotted line.