The average two-year fixed mortgage rate was 6.45pc on Friday, up from 2.34pc at the beginning of December 2021. The average five-year deal rose from 2.64pc to 6.28pc during the same period, according to Moneyfacts, an analyst.
A homeowner with a £320,000 mortgage on a deal fixed at 6.45pc would save £229 a month by switching from a 25-year term to a 35-year term, according to broker L&C Mortgages. Their monthly payments on a 25-year term would be £2,151, compared with £1,922 per month on a 35-year term. However, they would also pay an extra £162,170 over the duration of the mortgage.
On a 40-year term the same homeowner would pay £1,862 a month – but £248,593 more in interest.
Adrian Anderson, of broker Anderson Harris, said this was an option that was typically only available to people in their 20s and 30s.
He said: “Most banks will require the mortgage to be paid off by age 70 so this is only really available to younger borrowers. Most lenders will be looking at people’s employed income or self-employed income, so the mortgage is based on that earned income. The banks are presuming that they’re probably going to stop working at 70 and their retirement income will be significantly less than that.”
Mr Anderson said he worked with a couple who were both 40 years old and had come off a cheaper fixed mortgage rate and wanted to “cushion the blow” of increased payments by extending their mortgage term. They chose a 30 year mortgage – the maximum that would take them to the age of 70 – instead of a 25-year term. However, he said they still faced increases in their monthly payments because of how much rates have gone up.
