A fixed rate mortgage is a mortgage where the interest rate remains the same for a fixed period of time. A long term fixed rate mortgage means your interest rate is fixed for a long period of time. While shorter term fixed rate mortgages are usually fixed for a few years, long term fixed deals last from 5, all the way up to 40 years — depending on which deal you choose.
With any fixed mortgage deal that ends before your mortgage term, when that fixed term is up, you’ll have to remortgage if you want to fix your rate and monthly payments again. A long term fixed rate mortgage gives you all the benefits of a fixed rate mortgage, without you having to remortgage frequently. For this reason, and because their prices have been getting competitive, long term fixed rate mortgages are becoming more and more popular.
Let’s get into everything you need to know about long term fixed rate mortgages.
What is a fixed rate mortgage?
Fixed rate mortgages are the most popular mortgage deals out there for homebuyers. Why? Because you sign a deal and, for the length of that deal, you won’t be affected by any changes in your lender’s terms or rates. Nice.
Stability is the name of the game. A fixed rate mortgage locks in interest rates and locks out any nasty surprises. Whether you take out a 5-year, 10-year, or longer deal – you’ll know exactly what your monthly repayments will be for that whole period.
This isn’t a given when it comes to mortgages. For example, a fixed rate differs from a variable rate mortgage, in which your interest rate (and ultimately your monthly repayments) can vary.
While tracker rates (a kind of variable rate) can be a good option for some people, especially if you’re pretty sure that rates might go down, variable rates like your lender’s standard variable rate (SVR) can change at the whim of your lender. And if the interest goes up, you’ll end up paying more.
The trouble is that, when your fixed rate mortgage deal ends, you’ll usually get quietly nudged over onto the standard variable rate (unless you remortgage your property).
That’s one of the benefits of longer term fixed rate mortgages. You can put this moment off — maybe even forever! – and not have to worry about the admin, fees, and affordability checks that can come with remortgaging, for longer.
More about long term fixed rate mortgages
Technically, a long term fixed rate mortgage is any fixed rate mortgage that lasts for 5 years or more.
Once upon a time, these were less popular. 2-year fixed rate mortgages had incomparably better rates than their 5-year and 10-year siblings. But, times change. Nowadays, long term fixed rate mortgages actually make up the majority of the mortgage deals on the market.
Okay — so how long term is long term?
While 5 year fixes once seemed long term, you can now fix for 10, 15, and even up to 40 years.
With Habito One, you can fix your rate and monthly repayments for the entire term of your mortgage – right up until you finish paying it off. And this can last for anywhere from 10 to 40 years (more on One below).
A long term fixed rate mortgage means that the interest rate you agree to today will still be yours long into the future, but this greater security means you’ll be paying a bit more in interest now.
Fixed rate vs long term fixed rate mortgages
So we’ve covered what a longer term mortgage deal is all about, and what some of the tradeoffs are. Let’s lay out the major pros and cons:
Why you’d want a longer fix
- You’ll guarantee a low interest for longer. Fixing interest rates for longer means that you’ll escape any rate rises coming down the road. Interest rates are low right now — the lowest they’ve ever been – but the UK has seen interest rates everywhere from the current 0.1%, to 14%, just in the past 50 years. No one can predict what will happen tomorrow, or in a few years’ time, so fixing a rate for longer gives you extra security.
- You pay less in fees. Short term fixed mortgages can entice you with their low interest rates, but it’s easy to forget about the setup fees you’ll most likely have to pay (usually about £1,000) every time you remortgage to a new fixed deal. The shorter you fix for, the more those can add up; likewise, the longer the fix, the less of these you’ll need to pay. Think about it: if you’re remortgaging every 2 years, you’re paying 5 times as much in these fees as someone on a 10-year fix.
- Stability and convenience. Lenders’ criteria changes, interest rates change, and your circumstances can change. A longer fix means you can manage your life, not worry about mortgage rates and remortgage admin. And you won’t suddenly find yourself on an SVR, either.
Possible disadvantages of a long term fixed rate mortgage?
There’s always a downside to bear in mind. Here are some to mull over:
- You may pay more interest overall. The longer the fixed rate, the higher the interest rate (usually, anyway).
- No benefits from interest rate drops. While you won’t be stung by interest rate hikes, you won’t benefit from drops either. It just depends on whether you think interest rates are likely to get lower than they are right now.
- Early repayment charges (ERCs) and porting fees are sometimes higher.
What’s an ERC? If you want to pay off more than your repayments, usually more than 10% of your existing balance, you might be charged for it.
And what’s porting? Porting costs are charges if you want to move house and take your mortgage with you. Again, these can be higher with longer term mortgage deals.
Should I get a long term fixed rate mortgage?
Ultimately, there is no one size that fits all when it comes to mortgages. Different home buyers have different needs. For example, if you think you’re going to be selling in a few years’ time, it might not make much sense. And nor if you are buying a place with the intention to let it out.
However, there are lots of situations where the longer the fix, the better. If you imagine yourself in your new home for the foreseeable future, if you’re worried that interest rates could rise and make your mortgage unaffordable, or if you want to be able to budget long-term, being able to set-and-forget your mortgage could be the wise choice.
What are the best long term fixed rate mortgage deals?
There are good long term mortgage deals, and then there are the best long term fixed rate mortgages for you. There’s a lot of choice out there and some options will fit your needs better than others.
At Habito, we’ll help you make sense of what mortgage is the best for your unique circumstances. We’re both a lender and a whole-of-market broker — so you’ll also get access to 20,000 deals from over 90 banks and lenders.