Overall representative example If you borrow £178,000 mortgage over 25 years initially at 4.63% fixed for 60 months reverting to 6.99% variable for term. 60 monthly payments of £1002.56 and 240 monthly payments of £1214.16. Total amount payable £351,932.00 includes loan amount, interest of £173,552, valuation fees of £0 and product fees of £0. The overall cost for comparison is 6.2% APRC representative.
Think carefully before securing debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
If you’re looking to buy your first home or remortgage and you want longer-term security, you might be considering locking into a fixed rate deal. Here, we look at whether locking in your interest rate for the next decade with a 10-year deal is right for you.
How does a 10-year fixed rate mortgage work?
The BoE base rate is usually voted on by the Monetary Policy Committee (MPC) 8 times a year. The committee meets roughly every 6 weeks, although the rate isn’t changed each time.
The BoE base rate is generally used as the benchmark for interest rates. Banks use it alongside other economic factors to determine how much interest they will charge on mortgages and other credit products, as well as how much interest they will pay on savings accounts.
For those with a variable rate mortgage, such as a tracker, the interest rate will usually track the base rate. So if the base rate falls, so will your mortgage rate. If the base rate increases, your mortgage rate will also go up and you’ll pay more for your repayments.
However, with a fixed rate mortgage, borrowers are protected against rising rates. You lock in a rate with your lender, then for the duration of that term, your rate stays the same.
If you choose a 10-year fixed rate mortgage, the interest you pay on your mortgage and your monthly mortgage repayments will remain the same for 10 years. This means that you’ll be able to better predict your living expenses for the next decade, which can be particularly appealing if you’re on a tight budget. Even if the base rate rises, there will be no change to your mortgage for those 10 years.
However, the downside is that because 10-year deals offer greater security, they also tend to have higher rates compared to other deals on the market. They are also less flexible than variable rate products and often have higher fees. Having said that, because you won’t need to remortgage for 10 years, you’ll save on remortgage fees.
Fixed rate deals also tend to come with high early repayment charges. This means that should you need to move home or switch deals for any reason, you may have to pay hundreds or thousands of pounds to get out of your 10-year deal early.
What types of 10-year fixed rate mortgages are available?
In the same way as most other mortgages, you can choose from the following types of 10-year fixed rate mortgages:
Residential mortgages
If you’re buying a home to live in (rather than rent out), you’ll need a residential mortgage. Standard 10-year fixed rate mortgages will require a deposit of at least 5% of the property value, but the more you can put down, the better the rate of interest you’ll secure. You’ll also be more likely to access the best rates if you have a good credit score.
Buy-to-let mortgages
If you’re buying a property to rent out to others, you’ll need to take out a buy-to-let mortgage. You’ll usually need to put down a deposit of between 25% and 40% and interest rates tend to be higher compared to residential mortgages. If you want to lock in for a longer period of time, 10-year fixed rate buy-to-let deals are available.
Repayment mortgages
Most 10-year fixed rate mortgages will be on a repayment basis. This means that you repay a portion of the capital (the original amount borrowed) and some interest in each monthly repayment. Providing you meet all of your repayments, your entire loan will be repaid by the end of the mortgage term – typically 25 years.
Interest-only mortgages
Some 10-year fixed rate deals may be interest-only instead. This means that you only pay off a portion of the interest each month. At the end of your mortgage term, you will need to repay the original amount borrowed.
Interest-only mortgages have cheaper monthly repayments but they are less common than repayment mortgages. Those lenders that do offer interest-only deals will have strict lending criteria and will require you to have an approved repayment vehicle in place to ensure you can pay off the capital.
How to compare 10-year fixed rate mortgages
A 10-year fixed rate mortgage can be compared using the same factors as other mortgages, but there are a few additional points to consider.
Interest rate. The interest rate will determine how large your monthly repayments will be and it will be one of the most important factors when comparing mortgages.
Fees. As well as the interest rate, you should also take a close look at the arrangement or booking fee for each mortgage. Keep in mind that mortgages with lower interest rates often have higher fees. For this reason, you may find it cheaper to plump for a mortgage with a slightly higher interest rate but lower fee.
Early repayment charges. These can be higher on 10-year fixed rate deals and are usually around 5% to 10% of the total mortgage debt. Even if you have no plans to get out of your mortgage deal early, it’s worth checking how much the fees would be in the event your circumstances changed.
Ability to make additional repayments. Similarly, early repayment charges may also apply to overpayments. Most mortgages let you overpay by around 10% a year, but if you go over this, you’ll be charged a penalty. If you think you’ll want to make additional repayments during the year, check the terms and conditions of your deal.
Example: Dennis and Kathy
Dennis and Kathy are both retired and looking to downsize from their 4-bedroom house to a ground floor flat, then use some of the proceeds from the sale of their current house to travel. They don’t plan on moving again and want a simple hassle-free mortgage that locks in their monthly payments and doesn’t require them to remortgage every few years.
Dennis and Kathy opted for a 10-year fixed mortgage.
Here’s why:
Interest rate. They won’t have to worry about interest rate hikes and will know what their monthly repayment will be for the next decade.
No remortgage costs. Not only will it save them the headaches of remortgaging every few years, but they will also save on all the associated fees.
Long-term plan. They don’t plan on moving again, so there’s no need to worry about exit fees or early payment fees.
* This is a fictional, but realistic, example.
Pros and cons of a 10-year fixed rate mortgage
Pros
Better for budgeting. 10-year fixed rate mortgages offer the security of knowing exactly how much your mortgage repayments will be for the next decade and there’s no need to worry about interest rate rises.
Cuts remortgaging costs. Because you won’t need to remortgage as often, you can save hundreds of pounds on remortgaging costs.
Option to overpay. Many fixed rate mortgage deals allow you to make overpayments, typically up to 10% a year.
Cons
Higher interest rates. 10-year fixed rate mortgages tend to have higher interest rates compared to 2-, 3- or 5-year deals.
No benefit if rates fall. If interest rates drop, your mortgage rate will remain the same, which means you won’t benefit from lower repayments.
High early repayment charges. If you need to get out of your mortgage deal early, you’ll have to pay a chunky fee for doing so.
Bottom line
If you’re looking for long-term mortgage security, applying for a 10-year fixed rate mortgage while rates are low can make good financial sense. After all, you can relax knowing that no matter what interest rates do over the next decade, your mortgage repayments won’t change.
However, before making such a long-term commitment, you’ll need to be sure you have no plans to move or remortgage during that time so that you don’t get hit by hefty early repayment charges.
Frequently asked questions about 10-year fixed rate mortgages
At the end of the deal, you’ll usually be moved over to your lender’s standard variable rate (SVR). This is typically higher than most other rates so it’s a good idea to shop around and move to a more competitive deal.
Whenever you apply for a mortgage, lenders will check your credit history to see how reliable you are as a borrower. You may find it harder to get a mortgage with bad credit, but that doesn’t mean it’s impossible. By shopping around and talking to a mortgage broker you should be able to find a mortgage to suit you. Just be aware you may have to put down a larger deposit and the interest rate charged will likely be higher.
In theory, those who are self-employed have access to exactly the same mortgage deals as everyone else, including 10-year fixed rate deals. However, some lenders will require that you’ve been trading for at least 3 years before they will consider you and you’ll need to show 2–3 years' worth of accounts.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time.
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