Fix your mortgage for longer without paying higher rate

This new mortgage range allows you to decide exactly how long your mortgage rate is fixed for.

One of the things that has often put borrowers off going for long-term fixed rate mortgages in the past is the premium they will have to pay to do so. Why fix your mortgage for five or six years at 5%, when you could fix for three years at 4%? And who knows, by the end of that three-year period, there may be even better rates on offer.

However, a very clever new mortgage from Chelsea Building Society allows borrows to fix for far longer, and at no additional cost...

Choose your term!

Chelsea has launched a range of mortgages covering a number of different loan-to-value bands: 70% loan-to-value, 80% loan-to-value and 90% loan-to-value. The rates are fixed, so you pay 3.99% if you have a 30% deposit, 4.89% if you have a 20% deposit and 5.39% for borrowers with a deposit of 10%. What’s more, the fee is a puny £195.

So far so good, but the clever bit is the length of the fixed rate period – it’s completely up to you!

Borrowers can decide whether they want their rate to be fixed for five, six or seven years. So you can essentially fix your rate for an extra two years, without having to pay an extra penny for the privilege, a very unusual state of affairs.

But would you want to?

The case for fixing for longer

I prefer fixed rate mortgages generally. I like to have a good idea of exactly how much money I’m going to be spending on my various bills each month, and as my mortgage is my biggest outlay (despite the best efforts of Cow & Gate baby milk at the moment), it’s a bill that I like to have some certainty about.

I also don’t just want certainty for a little while – I like to know how much my mortgage is going to be costing me for years in advance. When I bought my house two years ago, my wife and I knew we were buying our home for the foreseeable future, somewhere we had no intention of leaving for at least five years.

As a result, a five-year fixed rate looked an attractive move. We could sit secure in the knowledge that our mortgage rate would remain at its affordable level for years to come, and not have to worry about shopping around to remortgage in a couple of years, and have to stump up another exorbitant product fee for the privilege. And knowing that we had no intention of moving meant that the early repayment charges, to get out of the mortgage, weren’t anything to worry about.

Fixing for a longer term can also be a good idea if you’re buying with only a small deposit, as it gives you a longer period in which to try to build up some equity before you need to think about remortgaging, hopefully allowing you to ride out house price falls.

Finally, and most importantly, there’s the rate. It may not seem it when bank base rate is sitting at 0.5%, but to fix for five years at 3.49%, or for even longer for 3.99% is an extraordinarily good deal if you compare mortgage rates historically. And with base rate only going one way - up - why wouldn’t you want to lock in to such an amazing rate for as long as possible?

The case against

The trouble with that rate argument is that people like me have been talking about base rate ‘inevitably’ rising for years, and yet it’s still sat at 0.5%. And there are plenty of economists and experts who expect it to stay there for another year at least.

As a result, tracker rates begin to look mightily enticing – why pay 3.5% on your mortgage, when you can get a tracker that will charge you 2%? It’s a little too much of a gamble for me, but plenty of borrowers are happy to have some risk in their lives. And just as there's a chance it won't work out, there's also a chance the gamble will pay off and you'll end up spending far less on their mortgage in the long run. (Not a good chance, in my opinion, but a chance all the same.)

There is another benefit to ultra-low trackers however. They offer you the opportunity to build up your equity stake on an even grander scale than fixed rates – it’s a lot more affordable to overpay significantly on a variable deal than it is on a fixed rate at the moment!

And then there’s flexibility. Fixing for the long term was right for me because I was buying a home for the long term. If you’re buying or living in a property you’re only likely to live in for a year or two, a five-year fixed rate is not a great idea as you’ll end up shelling out thousands in early repayment charges.

Get some advice

No matter how much I like mortgages like the new range from Chelsea, the fact is that they are not suitable for everyone. To get a better idea of the sort of mortgage which is best for your circumstances (and your attitude to risk) it can be a good idea to discuss your options with a professional.

You can do that, absolutely free, with one of lovemoney.com’s independent mortgage brokers over at our mortgage centre. They are available to discuss your options over the phone, via email or instant messenger. Why not give them a go?

Otherwise, check out the best of the long-term mortgage rates currently on the market below.

10 tremendous five-year fixed rates

10 extremely long fixes!

More: Land Rovers are the least reliable cars in the world! | The mortgage that will never charge more than 3.98%

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.