Long term mortgages have been around for a while, but in March 2021 Habito launched what they’re calling a Lifetime mortgage. Promising to lock in your mortgage interest rate for life, they sound like a great way to take control without the hassle of switching provider every few years. But are they really all they’re cracked up to be?
Traditional long term mortgages fixed rates for up to fifteen years. The Habito One mortgage and is offering the longest fixed-rate terms available on the market at up to forty years. Promising that your monthly repayments will never change (as a result of the fixed interest rate) and giving you the flexibility to move, switch, or pay your mortgage off early with no penalties, it’s easy to see the appeal.
Habito’s One mortgage is available to first-time buyers, remortgagers, and home movers who have between 10% and 40% equity in their home or as a cash deposit. You fix the interest rate for between ten and forty years and pay a fixed product fee of £1,995, no matter your loan-to-value (LTV) level.
Although their product fee is almost double that of other lenders, Habito argue you’ll only have to pay it once. In contrast, switching between two and five year fixes from other providers across the life of your mortgage could result in you paying thousands in product fees.
The fixed interest rate means remortgaging becomes a thing of the past. Between 2003 and 2007 the average interest rate was 3.5 – 5.75%, by fixing in on a ten year 2.99% deal you could potentially save thousands if rates rise during that period.
Once the mortgage is in place you can repay or exit at any time without incurring a penalty. Most other mortgage providers charge somewhere between 1% and 5% for early repayments or leaving a deal before the agreement ends, so the Habito One mortgage compares favourably on these fronts. Their promise to let you take the mortgage with you if you move with no additional cost is another way Habito is setting itself apart from other long term mortgage providers.
It’s easy to see the appeal of a mortgage that ensures repayments will never exceed a certain amount, especially when coupled with no exit, repayment, or moving fees.
The problem is that committing to a fixed interest rate could leave you significantly out of pocket across the duration of your term. The reason for this is that switching provider every two, five, or ten years allows you to choose the lowest interest rate available at the time. By locking your rate now you could end up paying over double the interest across a longer term. Not good! This is because Habito’s interest rate is significantly higher than market rate. Currently the lowest 5 year fixed on the wider market is 1.24% where the lowest term with Habito is 10 years at a rate of 2.99%.
Another concern is the product fee, although the same for all LTV levels, it does make it a pricey offering, especially in the case of new buyers or those with a higher LTV rate.
The high product fee in conjunction with long term high interest rates mean the thousands you save on not paying product fees every time you switch could potentially be negated.
There are circumstances in which the Habito One mortgage would work well and those where it wouldn’t, it all comes down to personal preference and circumstance.
If you like to take advantage of great low interest rates, don’t mind investing the time to shop around, and are unlikely to want to overpay it probably isn’t for you. However, if you want to protect yourself against interest rate rises, while removing the hassle of remortgaging, and are likely to overpay or move during the term this could be the right product.
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