What’s the advantage of a fixed 40-year mortgage?

What’s the advantage of a fixed 40-year mortgage?
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Habito, one of the first online mortgage brokers, has launched the UK’s longest-ever fixed 40-year mortgage, available from 15 March 2021.

Founder Daniel Hegarty commented that the fixed 40-year mortgage has been long-overdue, citing the unpredictability of the future. He added that the current fixed two- to five-year mortgages are remnants of a different age and don’t fit people’s home-buying habits today.

Colin Bell, founder of new mortgage lender Perenna, sided with Hegarty, stating that long-term fixed-rate mortgages could be the future of Britain’s housing market.

Could the fixed 40-year mortgage deal be the opportunity most first-time buyers have been waiting for all along? Let’s find out.

What are the main features of a 40-year mortgage?

A 40-year mortgage comes with two key features:

  1. It is available to first-time buyers, home-movers and homeowners remortgaging in England and Wales.
  2. There are no exit fees or early repayment charges (ERCs), confirming Daniel Hegarty’s comment that the 40-year mortgage deal won’t make homeowners feel trapped in a system.

The table below highlights the new ‘Habito One’ range and the fixed rates between 10 and 40 years, starting from 2.99%. There are no ERCs for all mortgage term years, and the product fee is a fixed amount of £1,995.

Mortgage term (years)

10–15

16–20

21–25

26–30

31–35

36-40*

60% LTV

2.99%

3.29%

3.49%

3.59%

3.84%

4.20%

75% LTV

3.29%

3.39%

3.59%

3.69%

3.94%

4.30%

80% LTV

3.59%

3.69%

3.84%

3.94%

4.19%

4.55%

85% LTV

3.89%

3.99%

4.14%

4.24%

4.49%

4.85%

90% LTV

4.39%

4.49%

4.64%

4.74%

4.99%

5.35%

*Indicative rate is correct as of 8 March 2021 but might change in the future.

What’s the advantage of a fixed 40-year mortgage?

A close look at the fixed 40-year mortgage deal reveals two advantages:

  1. There are no exit fees or early repayment charges. This is the main selling feature of Habito One’s fixed 40-year mortgage deal. It targets homebuyers who might fear getting into a mortgage deal that traps them with exit fees and early repayment charges.
  2. If you have many monthly financial commitments, locking in for a shorter mortgage term might mean higher monthly payments, which you cannot afford. The 40-year mortgage deal lowers these monthly payments, making them reasonable and more affordable.

Are there any disadvantages to a 40-year mortgage deal?

At first glance, the mortgage rates seem to be higher. It’s only practical that Habito fixes higher but reasonable rates to mitigate changes in rates over such a long-term mortgage. Habito’s 40-year mortgage comes with a fixed product fee of £1,995, which is considerably higher than fees associated with other mortgages.

Takeaways

The fixed 40-year mortgage deal offers certainty. Monthly payments will stay the same regardless of economic uncertainty or rate changes on the broader market. However, the deal is expensive and the fixed product fee of £1,995 is almost double that of other market-leading mortgages.

The Habito One mortgage is clearly innovative. No other mortgage lender is currently offering a 40-year mortgage term, with the freedom to exit at any time. 

Whether a 40-year mortgage is right for you will depend on your personal circumstances. It’s wise to crunch the numbers and compare a range of top mortgage deals, including a 40-year mortgage, to see which best meets your financial needs.

Remember, if you find these calculations challenging, it might be wise to consult an independent financial adviser.

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