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Fix for Longer

Jan 31, 2011

With many statistics in the property market following a downward trend, the five year fixed rate is certainly on the up and a recent survey suggests that it is currently the most popular deal with borrowers*.

More and more borrowers are viewing longer-term deals as the safer option in the current climate. So why are people opting for a longer tie-in when 2 or 3 year fixed rates have been popular for so long?

Appeal of the longer term

In recent months, many borrowers have experienced a short-term deal coming to an end in a market where the number of mortgage deals available has declined. Experts have long advocated short-term fixed deals as the best option for borrowers, due to the low overall cost.

The effects of the credit crunch on the mortgage market and lending criteria, however, have changed the way in which 2 or 3 year fixed rate deals are perceived. Many lenders have increased the fees associated with such deals, so the cost to the borrower in the long-term has risen.

Set this against a backdrop of rising food and fuel costs and stagnating salaries, and the appeal of a longer-term fixed rate mortgage is clear. Aside from the inconvenience of rearranging a mortgage every 2 years or so, the security of a longer-term deal provides peace of mind and the fact that monthly payments are set for several years or more means that there won’t be any surprises for the household book-keeper.

Lenders are clearly warm to the concept, too, as there are plenty of five and ten year deals on offer with attractive rates.

What to watch out for

If you are considering a long fixed-term deal, make sure you are aware of the early redemption charges as they tend to be more substantial than shorter fixed-term mortgages. If your tie-in period is lengthy, it may not be appropriate for your life plans.

Similarly, check the amount of overpayment allowed should you wish to make additional payments during the fixed rate period.

If you are considering fixing for a very long period, such as 25 years, bear in mind that interest rates can fall and, while you might be protected against a rise in the Bank of England base rate, you could end up paying more than you need to for a very long time.

What suits you?

As with any major commitment, it makes sense to look at all options and consider which one is best for you. Take into account your long-term career plans, the impact of family life and how important it is to be able to budget. A long-term fixed mortgage is not for everyone, but if knowing what your monthly payments will be for a long time would be a comfort, then it could be for you.

With a five year fixed rate mortgage from Teachers Building Society, you can overpay by up to 20% of the loan outstanding per calendar year without charge. For more information visit our fixed rate mortgage page.

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