Experts state long term fixed rates may not be best

 

April 9, 2008

In a recent report a number of industry experts have stated that longer term fixed rates, such as the 20 and 25 year fixed rate mortgage terms that the Chancellor of the Exchequer has been pressing for, many not be the best choice for many consumers. Alistair Darling has said that longer term fixed rate deals for 20 or 25 years could prove beneficial to homeowners because they can provide peace of mind and security, and can also benefit the housing and mortgage markets by providing increased stability.

Whilst many homeowners may be keen to have set repayments for some or all of their mortgage terms, it is also important for homeowners to remember that a lot can happen in such a long period, and circumstances can change dramatically. If they are tied into a long term fixed rate mortgage this could make things difficult if things do change in the future. Many lenders have already said that consumers in the UK do not tend to be keen on longer term fixed rate deals, and prefer the more traditional two or three year fixed rate mortgage terms.

One industry professional stated that borrowers on long term fixed rate mortgages would find that the mortgages were portable but may find that borrowing any more money could prove difficult. He said: ‘Borrowers who need to upgrade a home and borrow more money should be aware that their lender could refuse to lend them more money or offer it only at high rates. Those on shorter-term deals are free to switch lenders more easily.’

Another industry expert said that those signing up to these longer term fixed rate deals could find it very expensive to get out of them in the event that their needs and circumstances change. She said: ‘While borrowers may enjoy the peace of mind of knowing their monthly repayments will remain the same, their circumstances are almost sure to change and they could pay a heavy price to get out of the deal.’

Recent additions:

Written by admin · Filed Under Fixed Rate Mortgages, Mortgages 

Comments

Got something to say?