Mortgage: Borrowers Opt for 5-Year Fixed Rates

While the cost of living appears to squeeze, borrowers fix mortgage costs with a 5-year rate.

Trussle revealed that Homeowners use 5-year fixed mortgages to combat market uncertainty. The broker observed that five-year fixed rates on mortgage surged over the 2-year one since COVID-19 emerged. Homeowners search for financial stability amid the rising cost of living and Bank of England hiking interest rates.

Besides more 5-year fixed deals, there is a 17% extension in the first mortgage period by Trussle clients. Moreover, Santander revealed 55% of new clients opted for a 5-year fixed-rate last year, higher from 2016’s 20%.

Advantages of a 5-Year Fix

Trussle revealed that long-term fixed mortgages ensured the security of fixed rates. That means unchanged monthly payments. Homeowners will beware of what they need to pay every month for a certain period. That guarantees flexible budgeting. Individuals who secure fixed-rate mortgages at low-interest rates can enjoy the benefits for another five years. That is different from variable mortgages that adjust with fluctuating interest rates.

Possible Drawbacks

Trussle added that five years means a long duration, and such mortgages will fit the customer’s stage in life. However, individuals need to consider the possibilities of moving within this time. If possible, individuals should consider whether they can move their mortgage over.

Borrowers should evaluate the ERC (early repayment charges) of the mortgage. Homeowners interested in remortgaging or couldn’t transfer the mortgage when moving will face an ERC. Also, the ERC does not have a set fee, and agents calculate it using the outstanding amount on the mortgage. It is usually 1-5% but can vary depending on how far the clients are in the mortgage term.

Individuals interested in overpaying (to reduce mortgage loans) should note fixed rates tend to attract a yearly overpayment (10 percent limit) on the overall mortgage balance. Meanwhile, these mortgages lock borrowers to permanent monthly payments depending on the initial interest rate. That means clients will be safe whenever the Bank of England increases rates within the time. However, reduced rates within the 5-year duration make individuals feel like they’re paying extra money.