Fix your mortgage at 4% for five years

A new market-leading mortgage makes fixing for the long term even more attractive!

I have long argued the case for five-year fixed rate mortgage deals, despite the temptations of the extraordinary low interest rates on offer from many variable deals. And for me, the case for a five-year fixed rate deal just became even more compelling.

Last week saw a new market-leading five-year fixed rate mortgage launched by Chelsea Building Society. The deal allows borrowers with a deposit of 25% to fix their rate at an extraordinary 3.99%, albeit with a punishing product fee of £1,995.

So why are five-year fixed rate mortgages an attractive option for some borrowers?

A secure rate

When I bought my house two years ago, I knew from the outset what sort of mortgage I wanted. A five-year fixed rate.

There were a number of different factors behind that decision, but the biggest was the fact that the rate of interest I would be paying on my debt would stay consistent. As a first-time buyer, this was of the utmost importance to me. My wife and I had done our sums and worked out what our other bills and costs would come to, and how much we would have left over to cover mortgage payments.

But with the uncertainty of living together for the first time (and living away from our families properly for the first time), the certainty of knowing exactly how much our mortgage would cost each month was welcome. Food prices could rise, petrol prices could jump (they did), but when it came to the mortgage, we could relax. And fixing for a number of years, such as five, gives you that certainty for a nice, long period.

When I bought my property, base rate was at 0.5%, as it is now. If we had gone for a cheap tracker, sure the mortgage costs would have been lower. But each month, as the Bank of England’s Monetary Policy Committee got together to discuss what to do with bank base rate, the possibility of a rate rise – and therefore a jump in our repayments – would have hung over us. We didn’t need that pressure.

That’s a big appeal of five-year (and even longer) fixed rate mortgages. You get to sit back and relax, secure in the knowledge that whatever happens, your repayments won’t change.

The forgotten costs

However, the benefits of a long-term fixed rate mortgage stretch beyond simply a secure rate. It also offers a step around the additional mortgage costs, the costs many of us forget about.

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For example, with my five-year fixed rate mortgage, for those five years I have only paid out one product fee, one valuation fee and one set of legal fees. All of those fees together can quite easily end up at a couple of thousand pounds.

If I had instead gone for short-term fixed rates, a few two-year deals for example, then five years down the line I’d be onto my third different two-year fixed rate mortgage. That’s three sets of product fees, valuation fees and legal fees to account for. It all starts to add up.

A question of context

So borrowers currently have the opportunity to fix their mortgage rate at less than 4% for the next five years. That’s a frankly incredible deal, even better when you consider that you don’t need a deposit of 40% to get it, as is usually the case with such market leaders.

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Speak to anyone who has been around the mortgage market for a while and they will tell you that to get a fixed rate mortgage of any length for about 5% is pretty good historically. So the chance to fix for as long a period as five years for less than 4% is amazing.

There will be plenty who will point out that the rate on offer from many variable deals are still lower, and likely to remain that way for a little while. Indeed, just this week we have looked at why You can still save thousands with a variable mortgage.

But for me, the chance to secure a stable mortgage rate for such a long period, sidestepping additional mortgage fees, in a climate where mortgage rates are only going to rise is too good to miss.

13 tremendous long-term fixed rate mortgages

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At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email mortgages@lovemoney.com for more help.

This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article. 

Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.

Your home or property may be repossessed if you do not keep up repayments on your mortgage.