Should you Fix your Mortgage for 40 years?

News that a 40-year fixed-rate mortgage has launched this week may lead borrowers to question whether they should be opting for a long-term fix. However, with most borrowers tending to opt for two- or five-year fixes, the jump to a 40-year fix is quite a leap.

  Long-term security

Of course, the big advantage of a 40-year fix is that you won’t have to remortgage, probably ever again. You are locked in at the rate you take the mortgage out for, so if interest rates were to rise, it wouldn’t affect you. You can budget for the future, safe in the knowledge that nothing will upset the apple cart.

  No early repayment charges

Lenders have launched 10 and 15-year fixes in the past but there has been very little take-up from borrowers, mainly because of the early repayment charges (ERCs). These usually run for the length of the fixed period so if your circumstances change, you may have to pay a hefty penalty of thousands of pounds to get out of the mortgage early. The new 40-year fix from Habito has no ERCs at any time, so it addresses the issue of lack of flexibility.

  The mortgage is also portable so in theory you can take it with you when you move home. Of course, that will be subject to the lender’s criteria at the time so there is no guarantee that you will be able to port it.

  What about the rate?

This is the biggest stumbling point of the 40-year fix. Short-term fixes have proven to be so popular because they are the cheapest way of getting some security against rate rises. Habito is charging 4.3 per cent fixed over 40 years for a borrower with a 25 per cent deposit. Head over to Barclays Premier and a five-year fix is pegged at 1.67 per cent. What’s more, Barclays is charging a £999 product fee compared with Habito’s £1,995.

  The Habito borrower taking out a £750,000 mortgage would pay £4,084 per month, while the Barclays customer would pay just £3,060, a considerable saving of over £1,000 a month. Over five years, that is £60,000 saved. While Barclays does have ERCs of 3 per cent for five years, borrowers may be happy to commit for the medium-term in order to access such a competitive rate.

  Seek advice

As with any mortgage decision, it is worth seeking advice from a whole-of-market broker, such as AWS, who can help find the right home loan for your circumstances. Get in touch for more information.
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