Fix your mortgage at 3.99% for ten years!

Fancy paying 3.99% on your mortgage for a decade? Then this new deal may be for you.

I’m the sort of borrower that likes a little certainty with my bills. And when it comes to money, I’m a confirmed pessimist, always expecting the worst. That’s why I like longer term fixed rate mortgages, and one new deal has really caught my eye.

Chelsea Building Society has launched an exceptional new ten-year fixed rate mortgage at just 3.99% for borrowers with a 30% deposit, with a fee of £1,495. You can also go with a slightly higher rate of 4.19%, and only pay a fee of £195.

It’s an incredible rate for such a long-term fixed rate deal. But I don’t expect borrowers to be knocking down Chelsea’s door...

Ten years is a long time

If somebody told me that at no point over the next decade would I have to pay more than 4% interest on my mortgage, I’d be over the moon. That’s an incredibly low rate historically, and over such a long period of time represents – to me at least – a very attractive mortgage.

Yet many borrowers are put off the idea of committing to a fixed rate mortgage for such a long period. They prefer to wait and see, to remortgage every couple of years instead. And with rates on variable mortgages so cheap at the moment – inevitable, given bank base rate is still sat at 0.5% - it’s not that surprising that many take the ‘wait and see’ approach of sitting on a variable rate until rates start to move.

Shelling out an extra £4,000

After all, you can get a two-year variable mortgage with a rate of less than 2% currently with a 30% deposit (again from Chelsea).

On a 25-year, £150,000 mortgage, that’s the difference between paying £15,348 (monthly repayments of £639.50) and £19,183.20 (monthly repayments of £799.30) over that initial two-year period.

Is it really worth paying an extra £4,000 (should base rate stay at 0.5%), just to take away a little uncertainty?

Looking into a crystal ball

But what happens at the end of those two years? Do you sit on the lender’s standard variable rate (the rate you move to after the initial mortgage period), a rate which can be increased irrespective of what’s happening with base rate? Or do you remortgage, shelling out another £1,000 plus in fees?

And at that point, do you go with a tracker or a fixed rate? After all, if the signs are that base rate will be heading north, chances are the rate you get on that new mortgage will be somewhat higher than the rates currently on offer.

I don't have the answers to these questions.

The fact is that none of us actually know what is going to happen with base rate. Well, actually, that’s not true - we all know that at some point they are going to start going up. The trick is knowing when that will start to happen, and how quickly rates will increase.

At the moment, the signs point to an extended period of base rate staying where it is. Some economists have speculated that it may not move for another couple of years yet. But a couple of years ago the experts were certain we were in for a spell of base rate at 6% and above.

That soon went out of the window with the credit crunch, so I’m wary about believing without question that their predictions will come to fruition.

The pros and cons

So let’s try to focus on the plus and minus points of going with a long-term deal, or at least a deal of five years – longer than the two years most borrowers are happy to fix for anyway.

Pros

• Historically, an extremely low rate.
• Don’t have to worry about your repayments increasing at any time during the fixed rate period.
• Don’t have to shell out on remortgaging fees during that period.
• Don’t have to worry about the Bank of England’s base rate decision each month.

Cons

• You pay a premium for that certainty, which may cost you more in the long run.
• It will cost you a significant sum in early repayment charges to get out of the deal should you want to remortgage early.
• Not all long term deals can be ‘ported’ to your next property.

Personally, I’d prefer to pay that premium, for the sake of knowing that my mortgage will always be affordable for the next decade, and that I won’t have to waste time (and money) shopping around for a new rate every couple of years.

Let me know what you think via the comment box below.

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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.