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Pay 4.58% on your mortgage for a decade
Pay 4.58% on your mortgage for a decade
Leeds Building Society has a new market leading ten-year deal, but could you commit for a whole decade?
Would you like the peace of mind and financial security of fixing your mortgage repayments for a whole decade? Leeds Building Society is offering just that with two new market leading ten-year fixed rate deals. But could you commit to this long-term relationship?
These new ten-year fixed rate mortgages from Leeds Building Society come with different interest rates, depending on how much you're borrowing.
If you have 25% or more of the total mortgage amount to put down then you can secure a market leading 4.58% interest rate for the ten years. If you have between 20% and 25% you must pay a slightly higher, but still market leading, rate of 4.79% instead.
Both deals come with the chance to pay 10% of the capital off each year without a penalty and are fully portable should you wish to move home during the term.
They both come with £999-worth of fees for mortgages of up to £500,000.
The ten year itch
But is ten years too long?
A lot of things can change over a decade but personally I would value knowing that if I borrowed £150,000 (over 25 years) secured on a rate of 4.58% I would be paying £840.57 a month for ten years no matter what the ups and downs in the economy.
But one reason ten year mortgages may be a bad idea is the early repayment charges. This is the cost of getting out of your mortgage before your deal ends if you find something better or if your circumstances change.
With the Leeds Building Society deals the early repayment penalties decrease over time. So you'll pay a penalty of 6% of the amount repaid in years one and two, 5% in years three to six, 4% in years seven and eight, 3% in year nine and 2% in year ten. Considering the length of the deal these charges don’t seem too bad compared to shorter terms.
If you haven’t run for the hills at the thought of such a long commitment take a look at the other ten-year deals available on the market at the moment.
*Only available for remortgage
Mortgage rates as of 21/06/2012
Why so few long-term fixes?
As you can see there isn’t much competition for Leeds Building Society at the moment. I could only find seven other deals that offer a fixed rate for a decade and two of them were remortgage-only offers.
Historically the availability of ten-year deals fluctuates, as the table below shows:
Number of ten-year mortgages
*These include exclusive products funded by lenders such as Legal & General or PMS, otherwise it’s six deals
**These include exclusive products funded by lenders such as Legal & General or PMS, otherwise it’s five deals
So why are so few available?
It could be because there is less demand to lock-in for so long given that mortgage rates are relatively cheap at the moment. For example you could get a two-year fixed mortgage with the same 25% deposit at a rate of 3.69% from First Direct, which is a whole 0.89% cheaper than locking into the Leeds Building Society ten-year deal. So instead of £840.57 a month you could be paying £766.31, a saving of over £1,600 over two years.
The demand seems to lie in two-year deals. From this I would assume that homebuyers are choosing to keep their options open. Many borrowers have found that it pays to stay flexible and be able to remortgage and move onto a better deal. But personally I don’t know if I could cope with the hassle or the risk of rates rising.
When looking at ten-year deals it is important to think about the long-term not just the here and now: 4.58% is historically a pretty good deal on a mortgage and locking-in could protect you from sharp changes caused by the base rate which you will feel the impact of with short-term alternatives.
Pros of ten-year fixed rate deals
1. Peace of mindthat you will have a fixed monthly payment.
2. You can budget efficiently using this fixed figure and plan more effectively for the future.
3. If your budget is tight and there is no room for dramatic fluctuations this is the safer option.
4. You can relax for ten years without the stress of remortgaging.
Cons of ten-year fixed rate deals
1. You could get a cheaper deal at the moment.
2. Rates may stay low which means you will be paying over the odds for your mortgage for a long time.
3. If better deals come along that are just too good to miss you will have to pay early repayment charges to get out.
No one could blame a homebuyer for being nervous about committing to a ten-year contract.
If a decade is just too long there are plenty more five year deals on offer at the moment that could strike a happy balance between your finances and your fears.
Five-year fixed mortgage alternatives
* Fee of £499 for existing customers
It’s a tough decision to make but you can get the help of our mortgage brokers to point you in the right direction.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.
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