Longer Fixed Term Mortgages Could Save You More
Since he came into office one of the things that Alistair Darling, Chancellor of the Exchequer, has been pushing for is long term fixed rate mortgages, which he wants to see become more affordable and more accessible. Darling has always said that longer term fixed rates could help to improve stability in the mortgage and housing markets, and has also stated that this type of longer term fixed rate could provide homeowners with valuable security and peace of mind, as their repayments would remain the same throughout most or all of their mortgage terms.
The trouble with Darling’s idea is that the cheap mortgages he is pushing for are 20 and 25 year fixed rate mortgages, and these are far too long for many consumers. In the past many lenders have stated that consumers are not interested in tying themselves into a particular rate for such a long period of time, as interest rates could fall and they would then end up losing out. Longer term mortgages of ten years or more are popular in other countries, such as France and the United States, but not in the UK, where only 3% of all mortgages taken out last year were for a fixed rate period of ten years or more.
However, whilst industry professional warn that consumers that sign up to a very long term deal could pay dearly to get out of the deal mid-term should they wish to do so, many have recently said that a slightly longer fixed rate mortgage term of five years could actually prove cost effective to those that may be looking to refinance to another fixed rate regularly. Officials have stated that in some cases taking on a slightly longer fixed rate than the more traditional and popular two year fixed rate could save the consumer a lot of money.
The arrangement fees on two year fixed rate mortgages usually come to around £1500, and whilst the interest rates on five year fixed term mortgages are generally slightly higher the arrangement fees are significantly lower, and this is where consumers may be able to save money. The arrangement fees on five year fixed rate deals are usually around £1000 or less. If you were to remortgage your two year fixed rate mortgage over a ten year period the cost in arrangement fees would come to £7500. However, with the five year deals the arrangement fees would be likely to come to £2000 or less.
Given the predictions that the interest rate is likely to fall over the course of this year, those that do wish to opt for a fixed rate deal should compare mortgages from different providers, including comparing the arrangement fees charged. They should also bear in mind the reduced choice and increased eligibility requirements that have resulted from the credit crunch.
