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Should you fix your mortgage rate for 25 years?

Fixed-rate mortgages are now the most popular type of mortgage with the majority of us fixing for two, three or sometimes five years. But how do you feel about taking out a fixed-rate mortgage for 25 years? This is what the government would like to see more of us doing. It believes that this would help stabilise the mortgage market because it would protect borrowers from jumps in interest rates.

In response to this, lenders such as Halifax, Nationwide and Kent Reliance Building Society have already brought out 25-year fixed-rate mortgages.

Long-term mortgages haven't been popular in the past because the interest rate tends to be higher than on short-term fixes. As at the time of writing, you could get two-year fixed rate mortgages at 5.37% from Newcastle Building Society, three-year fixed rate mortgages at 5.75% from the Cheshire and a five-year fixed at 5.88% from Giraffe, whereas 25-year mortgages are mostly above 6%.

However, Kent Reliance offers one of the cheapest rates on its 25-year fixed rate mortgage of 5.98%. Halifax charges 6.39% on its 25-year fixed mortgage and it has an arrangement fee of £599. This is slightly higher than its 10-year fixed rate which costs 6.29%.

You may also make overpayments of up to 10% of the outstanding balance a year without paying a penalty charge, underpay and take payment holidays.

What Happens To Your Mortgage If Interest rates fall?

Long-term mortgages are fine if you take one out when interest rates are at their lowest. The scary thing about them is what happens if interest rates fall dramatically and you're stuck with a high interest rate for years and years?

Looking back, if you had taken out a 25-year fixed-rate mortgage in 1982, when the Bank of England's base rate was 14%, 10 years on you wouldn't be very happy because this is when interest rates started to fall by more than half.

If interest rates did fall, you wouldn't actually be stuck with a higher rate because these new long-term fixed rate mortgages are quite flexible and there is an escape route. But it will cost you. Both Nationwide and Halifax charge a 3% fee on the outstanding balance should you wish to redeem your mortgage within the first ten years.

Cheap Interest Rates Aren't So Cheap

While it would be comforting to have a mortgage safety net, let's face it, we are a nation of rate tarts. We have got used to switching every few years to get the best mortgage deal around and the concept of 25 years fixed debt seems too much of a radical change for many of us.

But when you switch your mortgage every few years, you have to remember that there is a reservation charge and an arrangement fee to be paid every time you take out a new fix. With the Newcastles two-year product, the arrangement fee is £1,599! If you are switching to a new lender, there are also valuation and legal fees.

If interest rates did fall, you wouldn't actually be stuck with a higher rate because these new long-term fixed rate mortgages are quite flexible and there is an escape route. But it will cost you. Both Nationwide and Halifax charge a 3% fee on the outstanding balance should you wish to redeem your mortgage within the first ten years.

Cheap Interest Rates Aren't So Cheap

While it would be comforting to have a mortgage safety net, let's face it, we are a nation of rate tarts. We have got used to switching every few years to get the best mortgage deal around and the concept of 25 years fixed debt seems too much of a radical change for many of us.

But when you switch your mortgage every few years, you have to remember that there is a reservation charge and an arrangement fee to be paid every time you take out a new fix. With the Newcastles two-year product, the arrangement fee is £1,599! If you are switching to a new lender, there are also valuation and legal fees.

With the long-term mortgage, you don't have this problem and the stability can help you plan your finances well into the future.

Looking For Mortgage Certainty?

Martin Ellis, chief economist of the Halifax, said, "Long-term fixed rates give borrowers more certainty about how much they will be paying each month, especially at times when interest rates go up quickly." He added they could be particularly helpful for people who have taken out a huge mortgage because they know that their repayments will remain the same.

The other key point is that no one, not even economists, can predict what interest rates will be in 10 or 15 years' time. Martin said he expects another interest rates rise in the near future followed by a flat period. He said it is too early to start talking about interest rates reducing.

Long Term Mortgage Fix Not For Everyone?

Nationwide Building Society brought out its first 25-year offering fixed at 5.49% last March, which it said was popular. It had £50 million available for the deal and it said that it was sold out in five weeks. The latest versio

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