Sometimes people prefer the comfort of knowing exactly how much their monthly mortgage payments will be. If this is the type of situation you would prefer to be in, then you would be much better suited for a fixed-rate mortgage in Hull. A fixed-rate mortgage is where your monthly mortgage payments are arranged to be a set amount every month. This won’t change for the duration of your term, which can vary anywhere from one year to ten. The longer you fix for, the higher the rate becomes.
If you are looking for a more cheaper fixed-rate mortgage, then you should probably shy away from taking out a rate longer than two years. The reason why we say this, is that it could come with much higher interest rates if you take one out for longer.
If you take out a mortgage for 10 years at a certain percentage, during your term interest rates could have risen, leaving the lender out of pocket whilst you’re sitting comfortably on a lower percentage. That presents itself as a higher risk to the lender, so longer terms tend to come with higher rates. In sticking to a shorter term fixed-rate mortgage, you will find yourself with a better rate, but only for that 2 years.
Believe us when we say it, the end of the two years will come around very quickly, meaning that you will have to search for even more deals towards the end of the mortgage. If the interest rates have risen at any point during the 2 years, then you may be faced with higher payments than you’re used to at the point of renewal.
If you would prefer to limit searching for new deals every two years, perhaps a 5-year rate would suit you better. This is a common occurrence in the mortgage world. By fixing it for 5 years, you would have a stable recurring payment for a much longer length of time. Remember, as touched upon earlier, being on a fixed-rate mortgage for 5 years will mean that you will be paying more for each mortgage payment per month than you necessarily would on a 2-year rate.
When we say “Long-term”, we don’t mean 5-6 years, we mean anywhere from 7-10 years. There are both positives and negatives for taking out a long term fixed-rate mortgage. Long term fixed-rate mortgages have never been a widely popular option in the UK. As a trusted Mortgage Broker in Hull, we don’t usually recommend fixed-rate mortgages of such a length.
Again if we hearken to aforementioned points, we know that a lot can change within a decade so committing to a fixed payment for as long as ten years creates problems with lenders. It also may not work in your favour either. Once you are in the deal, you cannot get out of it and if rates drop below your current rate, rather than rising, then you may be paying well over what you otherwise would’ve been.
If something happens and your financial situation changes you could end up having to repay your mortgage a lot earlier than you had initially expected to. In doing so, you may be presented with a charge by your lender. This is known as an Early Repayment Charge (ERC).
The ERC is calculated as a percentage of the amount that you owe. For example, if you manage to pay off your £100,000 mortgage early and your ERC is 2%, you would be charged £2,000 penalty as you have essentially broken the fixed contract.
We regularly witness people being given an ERC because they think that they can get away with paying off their fixed-rate early, not realising that they will in-fact be charged. For example, people who know that their fixed rate is due to end soon may start to look up deals for the next fixed-rate mortgage they wish to move onto.
If they find a great deal and they think that the rate may increase, they may look to pay off the rest of their fixed-rate payments in order to switch to this new deal, even though this of course comes with additional charges.
We also advise that you avoid chasing “headline” deals, those glamorous looking deals you see widely advertised. Chances are your circumstances may be different anyway and you’re not guaranteed to get it at the rate you were hoping for.
Remember that the lowest rates come with the highest setup fees which some customers are keen to avoid. Get in Touch today for more fixed-rate Mortgage Advice in Hull. If you are First-Time Buyers or Moving House in Hull and would like more information or some help with a fixed-rate mortgage, our dedicated mortgage advisors will be on hand to provide any assistance they can.