Be sure you're settled before you fix for a decade
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It has never been cheaper to fix your mortgage for ten years. The average ten-year fixed mortgage rate has dropped drastically over the past five years, from 4.61% to an average of 3.05%, according to figures from personal-finance comparison site Moneyfacts.
"For those looking to borrow less than 60% of their home's value with a super-clean credit history, there are astonishing deals to be had," says Miles Brignall in The Guardian. For example, First Direct will let you fix for a decade at just 2.44%, "meaning some households would never have to remortgage ever again". Coventry Building Society also has a tantalising offer fix for ten years at 2.55%. It will lend up to 85% of your home's value with no upfront fees.
The benefits of a lengthy fixed-rate deal are clear. You get to lock in a deal while interest rates are relatively low, and don't have to worry about rising interest rates for the next ten years. You will know exactly what your repayments will be for a decade and need not concern yourself with remortgaging. "In times of uncertainty, a decade-long fixed mortgage could be a safe-haven for borrowers," says Darren Cook from Moneyfacts.
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Of course, the drawback to longer-term fixes is that you are tied to that lender and interest rate for much longer than you might be used to. If ratesgo down, you will have to wait a long time to change lender.
Typically, the longer you lock in for, the higher the interest you will pay. However, at present, the gap between interest rates on a two-year fix and a ten-year fix are small. The average two-year rate is 2.53%, less than half a percentage point difference from the average ten-year fix.
Importantly though, the slight premium to short-term fixes isn't the only issue. You also need to consider how settled you are. A long-term fix tends to come with a sizeable early repayment charge. So if your situation changes, and you need to pay off your mortgage in advance, this could be expensive.
Typically, ten-year deals come with an early repayment charge of 5% of the total sum borrowed in the first two years, and 3% thereafter. Most deals let you move the mortgage to a new property, but in practice this can be blocked owing to technicalities. So make sure you are comfortable committing to your current home for a decade before taking the plunge.
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Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.
Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.
Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.
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