10 year mortgages
10 year mortgage – new kid on the block
Over the last year or so, one mortgage product that is gaining popularity is the 10 year mortgage.
Fixing your mortgage rate over 10 years may be considered overly conservative in normal times, but with base rates at their lowest ever over the past seven years, and the continual drop in fixed rates, there are some 10 year mortgage bargains to be had.
10 year mortgage – advantages
Those mortgage borrowers want to know exactly where they stand with their payments year-on-year find the 10 year mortgage offer attractive. Fixing your mortgage rate for 10 years gives you 10 years of peace of mind regardless of movements in the mortgage market.
Because rates are so low, 10 year mortgage rates are similarly comparatively low with 10 year mortgage rates now similar to equivalent 5 year rates we were seeing two or three years ago.
10 year mortgage – disadvantages
There is a risk that a 10 year mortgage may leave you with a fixed rate that is pricier than running short term fixed rates over the equivalent period. Since current rates are so low, this is less of a concern than it was when borrowers were taking 7% fixes on ten-year mortgages.
The key potential disadvantage is lack of flexibility. If you need to repay your mortgage within the 10 year period, you may find yourself stuck with a heavy early redemption penalty (market rates for erps are 5 to 7% of outstanding balance). Since most of us find it difficult enough to plan our lives five years ahead, 10 years seems a long stretch.
Of course, many of the 10 year mortgage products will have the option to port the rate to a new property. But porting depends on the borrowers meeting the lenders criteria at the time and that cannot always be guaranteed.
10 year mortgage – the market
At the time of writing, there are just five lenders offering ten-year mortgages in the market and we know of another two lenders who have offered ten-year rates in the past and are likely to do so again in the future.
Three of the 10 year mortgage lenders are targeting the sub 60% loan to value market. The other two are targeting the 60 to 80% loan to value market.
10 year fixed mortgage rates today range from the early to mid 3%’s
Arrangement fees are typically £995, there is a provider offering a no fee product which may be attractive to the borrower with a lower lending requirement.
10 year mortgage – underwriting
10 year mortgages are underwritten by the lender in the same way as other products, although one key difference would be that some lenders will not apply a stress test.
Stress tests are additional checks on affordability to ensure that borrowers can afford to pay if interest rates rise. Where a medium to long-term fixed rate is being taken, the stress test can sometimes be avoided.
If you would like to consider a 10 year mortgage call us now on 020 8979 9684