Should I get a 40-year fixed-rate mortgage? - Times Money Mentor
Should I get a 40-year fixed-rate mortgage?
By Katherine Denham	updated November 29, 2021
When you shop around for a mortgage, you can choose a deal whether the interest rate is fixed for a certain number of years or whether it fluctuates over time.
Most homeowners opt for fixed deals where the interest rate is locked in for two, three or five years.
However, some lenders have started offering mortgages with a rate that can be locked in for a decade or longer.
Understanding fixed-rate deals and mortgage terms
What are the disadvantages of a long-term fixed rate mortgage?
What is good about a long-term fixed rate mortgage?
Is it better to have a longer term fixed rate mortgage?
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A long term mortgage of 25 years used to be commonplace for first-time buyers. But due to rising house prices, many will now opt for a 30-year mortgage term or longer to make the repayments more affordable.
The maximum is usually a 40 year mortgage term, which many banks currently offer. These have been dubbed “marathon mortgages”.
It’s important not to confuse a fixed-rate deal with a mortgage term.
The mortgage term is the lifespan of the loan which gives you an indication of the length of time it will take to pay off the entire mortgage, whether that is in annual or monthly repayments.
A fixed-rate deal is the window of time during the mortgage term when you can lock in an interest rate.
Most people will switch to a new fixed deal when their current one ends to avoid rolling onto their lender’s expensive default tariff, known as a standard variable rate.
So while many homeowners might take out a mortgage term of 30 or 35 years, most would take out a new fixed-rate deal every few years.
However, it’s now possible to take out a mortgage with the rate fixed for the entire duration of the term.
What is unusual about 40 year fixed mortgage deals is that they allow borrowers to lock in the interest rate for the entire duration of the mortgage term.
But it doesn’t come without downsides, which we outline in this article.
Find out more: Calculate your mortgage repayments
Should I get a 40 year fixed rate mortgage?
Kensington Mortgages is the latest lender to allow borrowers to fix their interest rate for as long as 40 years.
The loans are similar to those offered by online mortgage broker Habito, which was the first to offer a home loan where you can lock in an interest rate for between 10 and 40 years.
When you are deciding whether to fix for a long period of time, the biggest thing to consider is how the interest rate compares to what else is on offer in the mortgage market.
Interest rates are at record lows and many fixed deals currently come with rates of between 2% and 3%.
However, if you want to fix for a term of 10 years or more, you usually have to pay more for the privilege.
So if value for money is the most important factor to you, a long term fixed deal probably isn’t a great idea.
But if certainty is more important than value for money, a long term deal might make sense.
What are the disadvantages of a long term fixed rate mortgage?
The main downside is the expense. Interest rates on long term fixed rate mortgages are a lot higher than the rates on short term deals.
For example, the interest rates on Habito’s mortgage range vary between 2.99% and 5.35% depending on the:
These rates are a lot more expensive than shorter term deals, so you risk missing out on the really cheap deals currently on offer.
But you have to weigh up whether the predictable repayments are worth the extra cost.
Some banks impose age limits on their long term mortgages to prevent running the risk of people paying off loans in retirement.
It’s worth noting that banks like Santander, that offer a 40 year term, have a maximum age limit of 75 for borrowers. So those over the age of 35 won’t be eligible.
Bear in mind that some long term fixed rate mortgages come with hefty exit penalties if you decide you want to switch before the term has ended.
Make sure you understand any fees you could end up paying if you decide to exit your deal.
1. Predictable repayments
The big plus point about a longer term fixed deal is that your monthly repayments are predictable for a long time.
It means that you don’t have to worry about what’s happening in the wider mortgage market and are effectively protecting yourself against interest rate rises.
For example, if you secure a five-year deal and interest rates creep up in five years’ time, when you switch to a new deal you might have to pay a rate that is higher than the one you are currently on.
People on shorter term deals also have to shop around every few years, which can be time consuming.
Each time you switch you would probably spend time researching the mortgage market and speaking to a broker to choose a new deal.
3. It saves (some) money
Admittedly you will pay more in interest if you opt for a long term fixed deal, but you could save money on lender fees.
This is because most deals come with product charges, typically costing around £1,000. If you were to switch 10 times over 35 years, that is an extra £10,000 in fees that you might have to pay on top of your mortgage.
If you are paying a mortgage broker each time you switch to a new deal, the fees can also mount up to thousands of pounds over the lifetime of your loan (though bear in mind you can get mortgage advice for free).
Opting for a long term fixed rate mortgage means you no longer have to worry about these extra costs.
Is it better to have a longer fixed-rate mortgage?
Longer term home loans are a double-edged sword because they reduce monthly repayments by spreading the loan over more instalments, but they also increase the amount of interest you pay over the full term.
So, for example, if you are a first-time buyer with a £200,000 mortgage paying an interest rate of 2.2%:
Your monthly payments would be £867 over 25 years. However, your total interest payments would amount to £60,200 over 25 years.
If you took out the same loan with the same interest rate but over 40 years, you would pay £627 each month. But your interest payments would be £100,000 over 40 years, making the longer term loan around £40,000 more expensive.
This example doesn’t take into account the fact that people who choose a fixed deal for the maximum 40 years will pay a higher interest rate than those on shorter deals.
This means that they face a bit of a double-whammy in terms of the overall expense of the loan.
Long term fixed rate mortgages are usually only available to people with large deposits, which means they haven’t typically been useful for first-time buyers who can often only stretch to a 10% deposit.
While Habito’s loans are available to people with 10% deposits, its rates at this end of the mortgage market range between 4.39% and 5.35%, making them look very expensive.
If you were to lock in the rate at this level and remain on this mortgage for the entire term, you would miss out on cheaper interest rates that would be available to you as you built up more equity in your home.
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