Independent financial advice - short-term versus long-term mortgages
Get independent financial advice before you opt for a short term or long term mortgage
Ask the experts
It seems obvious, but it's wise to get independent financial advice before signing on the dotted line for a mortgage because there are so many options out there. The UK housing market is very different to the continental and US housing markets. British homebuyers tend to prefer cheap short-term discounted or fixed -rate deals, or variable rates which move up and down according to the Bank of England base rate. In contrast, the US and European mortgage markets are much more dominated by longer-term fixed-rate deals.
The borrowers' favourite
Short term fixed mortgages are very popular in the UK because there are some great deals on offer, and the market is very competitive. The advantage is that the borrower can budget knowing exactly what the mortgage outgoings will be each month. Long term fixed rate mortgages are, on the contrary, an unpopular option as the interest rates are usually much higher. Some lenders do offer long term fixed rate, for up to 25 years, and if interest rates rise sharply in the future, many more borrowers may wish they had opted for a longer term.
Remember to switch
If you have opted for a short term mortgage, it's important to remember to forward-diary the date this agreement comes to an end. If you miss this deadline, the first thing you'll notice is a change in monthly re-payments, which means that you'll be going on to the lender's usually more expensive SVR, or standard variable rate. If you are planning to get independent financial advice to shop around for another short term deal, you should give yourself around three months to put an alternative mortgage in place, or you could find yourself paying the SVR unnecessarily.
Switch or stay?
Many UK borrowers don't like to chop and change their mortgage deals, and a long term fixed rate mortgage could work out cheaper in the long run than a series of short term deals or the variable tracker mortgage. Essentially if you are taking independent financial advice about fixed term deals, the long-term/ short-term debate comes down to the type of borrower you are - someone prepared to settle for a good (but not fantastic) rate which lasts the distance, or someone who's prepared to put in the time chasing the keenest possible deal.
Check the small print
Independent financial advice should be taken if you need help in understanding the small print. Lenders charge arrangement fees, and these will push up the cost of your outgoings when you take on a mortgage. Some mortgages have penalties and charges for early repayment or for switching. Valuation fees can also push up the costs of your mortgage, so be sure to check the small print before you commit.
You can have a brighter financial future. If you would like independent financial advice about fixed rate mortgages call our experienced advisers today on 0870 803 1995 or e-mail mike.robertson@mraltd.com
