10-Year Fixed Rate Mortgages

The mortgage market is subject to wider economic influences, so for those looking for consistency, taking out a fixed rate mortgage may offer you peace of mind.

Read on to find out the pros and cons of taking on a 10-year fixed rate mortgage.

What is a 10-Year Fixed Rate Mortgage?

A fixed rate mortgage is where your lender agrees to offer you a mortgage where the payments are agreed to a set amount, per month, for a period of 10 years.

Each mortgage type is made up of two parts, capital and interest. ‘Interest’ covers the lender’s cost for loaning you the money to buy a property, and the ‘capital’ refers to the actual funds used to make the purchase.  Lenders will also have what is known as a standard variable rate of interest (which changes with the Bank of England base rate). However, for those on a fixed rate deal, your payments will be unaffected by these fluctuations, meaning that your mortgage interest rates will always be the same.

When taking out a mortgage of this type, you need to ensure that it is affordable for you, every month, (especially if you choose to fix for a long period, such as ten years).

Am I Eligible for a Fixed Rate Mortgage?

  • The majority of lenders will state that you must be 18 years and over can apply for a fixed rate mortgage. It is possible that some lenders may have an upper age limit for their mortgage applications. For example, they may stipulate that the mortgage must end by the borrower’s 85th birthday.  
  • Each lender will check your credit report, to ensure that you have a good history of making payments on time. To find out more about credit scores and how you can improve yours, take a look at our Guide to Improving your Credit Rating
  • You will also be subject to an income check; this is to ensure that you earn enough to cover your mortgage payments every month.
  • You will need around 10% of the home’s asking price to put down as a deposit. It is very rare to find a mortgage lender offering 100% Loan to Value mortgages.
  • You will need to legally be permitted to live and work in the UK.

How is a Fixed Rate Mortgage Repaid?

When signing up for a mortgage, you are agreeing to pay off the full amount in capital and interest, by the end of the mortgage term (which could be from 20-30 years).

The ‘fixed’ period refers to the length of time of which you will pay the same amount, month to month. At the end of your 10-year period, your rate of interest may be switched to the provider’s standard variable rate, which may be higher than what you have become used to paying every month.

Exiting the fixed rate period may incur early repayment charges. See more about the costs of taking out a mortgage in our Guide to Applying for your First Mortgage.

At the end of the 10-year period, however, you may decide to remortgage with a different lender. Applying for a new mortgage may also incur charges.

What are the Benefits of a Fixed Rate Mortgage?

  • No Surprises – With a fixed rate deal, budget planning is easy. You will know how much your mortgage expenses are every month. With other mortgage types, your interest rate may be subject to change.
  • Take Mortgage with You- If you chose to move house, many fixed rate mortgage lenders will allow you to ‘port’ your mortgage to your new property. This is, of course, dependent on your lending criteria; you may need to be re-assessed before the mortgage is transferred across.
  • Interest Rates – Borrowers with a good credit history can apply for fixed rate deals, where the interest rate is low.

Let’s Look at a 10 Year Fixed Rate Mortgage Example:

Doreen is looking at 10-year fixed rate mortgages, as she wishes to stay in the same property for a long time. She needs to borrow £100,000 to buy her dream house in the countryside and has spotted a deal with 2.39% interest. To secure this deal, however, she will need at least a 50% deposit. Doreen anticipates that interest rates on variable mortgages may rise soon, in fact, she is looking to take out a mortgage when interest rates are at a historic low. She believes that fixing for a long period would suit her circumstances best.

What are the Pitfalls of a Fixed Rate Mortgage?

  • Other Mortgage Types May be Cheaper – If you take out a tracker or capped mortgage, your interest rate is variable and could fall, if the Bank of England base rate of interest also falls. On fixed-rate mortgages, you don’t benefit from falls in interest rates. Over the space of a decade, you may find that you have paid significantly more in interest than those on other mortgage plans.
  • Early Repayment Penalties – Should you wish to exit your fixed rate mortgage plan early, you will more than likely face a charge. You will then have to factor-in the cost of taking out another mortgage.
  • Security at a Premium –For surety in your mortgage payments, fixed term mortgages often have high arrangement fees. You will need to think about these costs before making your decision.
  • SVR Switch – When your 10-year fixed period ends, you will likely be automatically switched to paying the lender’s Standard Variable Rate of interest. In some cases, this may be considerably higher than your 10-year fixed rate. Be ready for the change, by checking the end date in your mortgage contract. You may wish to take up a new contract with your existing lender or change providers entirely.

What are the Alternatives to Fixed Rate Mortgages?

  • Capped Rate Mortgages – These mortgages charge a variable interest rate; however, you have a ‘cap’ on the maximum amount of interest payable. This ensures that your mortgage payments will never be too expensive for you. You even benefit from falls in interest rates, which means your monthly repayments could potentially be cheaper some months.
  • Tracker Mortgages – These follow the Bank of England base interest rate, so in times when interest rates are low, your monthly mortgage payments also stay low. If, however, the Bank of England decides to raise this figure, your mortgage may become more expensive.

If you are thinking about getting a fixed rate mortgage, get in touch with an independent mortgage broker. They can help you find the best deal for you with free, no-obligation quotes. Apply now.

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