10 year Mortgage10-year mortgage
Seduced by a 10-year mortgage?
A 10-year mortgage, where your interest is set for an entire ten-year period, is still a scarce animal, but has begun to make the news. Admitting a mortgage is usually stressing - and you may find that the biggest stressor can be the levels of insecurity involved. However, the most important thing to consider when taking out a mortgage is the amount of money you can afford to pay. Are interest levels going to go up, how fast and by how much could they go up?
Those are some of the things no one can say with 100 percent confidence. For example, the prospects of a mortgage with a 10 year interest period may appear very appealing at first. The interest is at a historical low, so you may be stuck in a large interest bracket at the right moment.
They will not be able to pay back the mortgage in full within the first 10 years without suffering potentially high penalties. Maybe you can still move, but only if you take the mortgage with you, which is only possible if the creditor authorizes it. You will receive higher salaries per month than under a lower interest flat fee.
Eme is considering the purchase of a 300,000 pound home with a 250,000 pound mortgage. 2 ) A 5 year Leeds Building Society 5 year mortgage at 3.59%, with prepayments of 35 and a first month's instalment of £1.263. 3 ) A 10-year TSB mortgage at 4.29%, with prepayments of 450 and a first month's payout of 359.
In the first two years of her mortgage, Esme would pay: When Esme chose the 10-year fixed-rate mortgage, she would be paying 5,817 (or 21%) more in additional interest in the first 2 years alone than if she had selected the 2-year fixed-rate mortgage. Esme, if she succeeds in borrowing at 2.54% for the entire 10-year term (which she may be able to do by entering into five successive shortterm interest rates ), would be paying around £136,245 over the entire term.
So the only thing that would make the 10-year deals the best choice in this case would be for interest yields to go up significantly over the 10-year horizon. Now, 2-year floor interest would have to go up to 4.5% or more for Esme to be better off taking the 10-year options.
The Bank of England's graph shows when we last saw interest levels at this point, during the 2005-2007 real estate boom: After careful consideration, Esme decided that the 10-year contract does not provide a good value for her. A number of short-term fixed-rate transactions seem to be by far the better options for all others.
With a 2-year fixed-rate mortgage, you can also be sure that your minimum amount of money will be significantly lower in the near future. Dalbeath Financials Planning Managing Partner Matt Harris is a highly skilled mortgage and finance consultant. We advise our customers on all aspects of their finance, as well as mortgage and endowment policies, but specialize in retirement planning and asset allocation.