- 03
- Sep
Recently, the government released a statement encouraging customers to opt for twenty five year fixed rate mortgages. These mortgages, it was felt, offered home owners a great amount of security as they did not have to worry about what interest rates were going to do over the life of the loan. However, customers have not been too keen to opt for these mortgages.
There are a number of reasons for not going for a 25 year fixed rate mortgage. For one thing, despite the fact that these home loans are supposed to take a lot of the risk out of the deal for the customer, there is still a high risk as many people cannot be certain how things are going to progress for them over the next twenty five years financially. There is a risk in committing to a rate that will remain steady, and if rates go down in the future, you will be trapped in your high fixed rate mortgage.
Another issue with these fixed rate mortgages is that they charge very high penalties for early redemption. Suppose you want to move home in the next couple of years, you will be forced to pay a high fee, sometimes as much as 3% of the value of the mortgage, to get out of the deal. Another problem with the mortgages is that the rates tend to be quite high, and for many people, this simply is not affordable at the moment.
