Is security the most important thing?
Security is a strong feeling, its something you want for your job, for your health and for your family. And a big part of managing your security is making sure you can manage your money. To be able to do that is knowing what you are going to spend each month. What your food will cost, your savings, petrol costs etc. But the biggest and most important one is your roof over your head. Your mortgage repayments! And a fixed rate mortgage can ensure what you are going to pay each month.
Fixed rate mortgage means that the interest on your mortgage doesn’t increase over a certain amount of time. Which means your mortgage repayments don’t increase or decrease.
Most fixed rates have a set time until they go onto the lenders standard interest rates. This is usually set by the lender or the Bank of England. To find out more about interest rates and variable mortgages and how they effect your mortgage payments, read more here.
Most fixed rate mortgages have a fixed rate of around 5 years, last week both Virgin Money and Yorkshire Building society have released a 15 year fixed rate mortgage. And that’s a good thing?
Thing is 15 years fixed rate mortgage means that your mortgage payments will be exactly the same for…well…15 years. Pretty self-explanatory. So for all you security lovers, you have payments, you know what they are, and they are set for 15 years. And that’s great.
There are some drawbacks though, firstly quite often the general interest rates are a little higher than usual. Meaning over that long time you will be paying back quite a lot. At the moment with the economy being so up and down, that may be a safe bet. Yes you are paying back more over time. But with variable rates you could be paying back even more.
The other issue is fixed rate mortgages always have a early repayment charge. Quite often it’s the length of the fixed rate period or there and thereabouts. For a 15 year fixed rate mortgage, it is a much longer period. And the cost of leaving is often higher than usual too. So if you choose to leave the mortgage it will be a costly endeavour
Virgin Money’s 15 year fixed rate mortgage has a early repayment time of up to 2025 at 8%. That means that at a mortgage of £400,000. That’s a cost of £32,000. Which is quite a chunk of change. But if you are in your “forever home” and you don’t need to leave earlier than 15 years then there really is not an issue. As you have that security.
But if the rates go significantly down over the years then you could be out of pocket.
It really is about what is important to you. What do you value more?
As always make sure you speak to someone you trust, when applying for a mortgage. Get the right advice and ensure that you understand the decision you are making.
Your home may be repossessed if you do not keep up repayments on your mortgage.