The Deal Of The Decade!

Could you save money by fixing your mortgage rate for many years to come? We check out the best ten-year fixed-rate home loans.

Way back in the Nineties, I took out a ten-year fixed-rate home loan with my existing mortgage lender.

I'd already had two special-rate deals with the same lender when I began searching the market for yet another low-rate deal. Naturally, I wasn't keen to pay my lender's standard variable rate (SVR), because this was the highest rate it charged to borrowers, so I was shopping around carefully. Fortunately, I spotted that my mortgage lender had a Best Buy ten-year fixed-rate loan available to new customers, so I sweet-talked it into giving me the same deal. (That's sweet-talked as in: "Give me this rate or I'll take my home loan to one of your rivals"!)

Anyway, there I was, with a handsome fixed rate of 6.25% a year for a decade, when the events of 11 September 2001 happened. '9/11' had a dramatic effect on interest rates on both sides of the Atlantic, as the US Federal Reserve and the Bank of England repeatedly cut their base rates in order to ward off any economic downturn.

Hence, in 2002, I found that my trusty fixed-rate loan had become more expensive than other Best Buy mortgages, so I bit the bullet and bought myself out of this deal, at a cost of around £2,700 -- ouch! Still, I'd saved quite a lot of money in the preceding three or four years, so this penalty wasn't such a blow. What's more, the tracker mortgage which replaced my fixed rate continued to become cheaper as interest rates fell, so I benefited from subsequent interest-rate cuts.

Back to the present: in August, the Bank of England increased its base rate to 4.75% a year, and further rate hikes may be in the pipeline. Hence, I checked to see what's on offer today for mortgage borrowers keen to lock into long-term fixed rates in the face of rising interest rates. Here's what I found by searching the entire mortgage market (over eight thousand home loans) using the Motley Fool mortgage service:

Best Buy ten-year mortgages

(Based on a £100,000 repayment mortgage over 25 years to buy a £200,000 property, with no lock-in once the fixed rate ends)

As you can see, it's possible to fix your home loan for ten years and pay a market-leading interest rate of less than 5% a year. However, don't be fooled by headline-grabbing mortgage rates: be sure to check the charges in the small print, too!

Thus, I've included any upfront arrangement fees in the figures in my final column, plus any fees to move or pay off the mortgage once the decade is up. (Also, I'm assuming that you'll keep this mortgage for the full ten years, so I've ignored any early redemption penalties.) Calculating the true cost over ten years is a much fairer and more accurate reflection of the actual cost of these deals.

In my view, getting a fixed-rate home loan at these interest rates is a steal, especially as the base rate is widely predicted to increase to 5% a year when the Bank of England's Monetary Policy Committee meets on 8/9 November. Although mortgage rates are sure to go up and down over the next decade, these fixed rates are very low in historical terms, so I don't believe that you'd go far wrong with them. At the very least, you'll have the comfort of knowing exactly how much your next 120 monthly mortgage repayments will be!

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