Dangers of a 25-year Fixed Rate Mortgage

Mortgage Guide
Click for Full Contents

Types Of Mortgage
Click for Full Contents

The dangers of a 25-year Fixed Rate Mortgage

The Government wants to encourage more borrowers to sign up to mortgages with interest rates that are fixed for between ten and 25 years.

But fixes as long as this are extremely risky.

If you're lucky, there can be advantages to this kind of deal, but if you're unlucky, they can work out desperately expensive.

The benefits of a long fix

• Certainty

It's far easier to budget and brings peace of mind when you know that no matter how high other borrowers interest charges rise, your monthly mortgage repayment won't alter for the next ten years or more.

• No need to switch

you'll also avoid the expense and hassle of remortgaging every few years to get a better deal.

The dangers of a long fix

• Cost

This kind of certainty comes at a price ten and 25-year interest rates are not as competitive as those for the very best shorter deals.

• Lack of flexibility

Many experts think rates are nearing the end of their current cycle of rises, with cuts likely by next year.

This means anyone with a long-term fix could soon find themselves paying far more than other borrowers.

Over the years, that could add up to thousands of pounds wasted.

• Penalties

If rates do fall, you can't just abandon your deal and switch to a cheaper one.

Long-term fixes come with long-term early redemption penalties to ensure you stay put.

These typically last for ten years or more and can be on a sliding scale, reducing as the years pass.

Sign up for a ten-year fix and you might face a charge of 5 per cent of your original loan amount to get out within the first couple of years (£6,250 on a £125,000 mortgage) falling to 2 per cent (£2,500) in year ten.

With a 25-year deal you might be charged 3 per cent to escape any time within the first decade or even the entire term.

The alternatives

that's why you might do better to copy the vast majority of borrowers and choose a fixed or discounted deal of between two and five years.

They tend to be cheaper and you should be free to move on as soon as the fix or discount ends.

For more on these, see What length of deal should I choose?

Or, if you don't want the cost and trouble of regular remortgaging, consider a lifetime tracker.

To find out about these, read The lifetime rate mortgage and The types of lifetime rate mortgage.

See your Full Guide to Fixed Rate Mortgages UK

To read more on this subject please see the list below or your mortgage guide or your home buying guide

Read enough? Just want a quote? To get your best mortgage quote quickly and easily we can put you in contact with a recommended mortgage adviser. It's free, completely confidential and there's no obligation at all. Simply fill out the form below


Value of Property	£
		(eg 125000)

Borrow How Much?	£
		(eg 92500)

Your Mortgage Type

First time buyer?		Yes No
Have you found property?		Yes No
Country

Sorry ! The amount you want to borrow is less than £25,000. This is the minimum allowed for a mortgage. But don't worry! You could get the money via a personal loan. I want a free no obligation loan quote Click OK No thanks. I will change my borrow amount to more than £25,000 Click Cancel