Five fantastic fixed mortgage deals!

Now is the right time to take the plunge with a longer-term fixed rate mortgage, argues Jane Baker.

To track or to fix, that is the question. Unfortunately it's a mortgage question without a clear cut answer. It's hardly surprising tracker mortgages are proving popular with borrowers right now when the rates on the most competitive deals do look very attractive indeed.

Take the Woolwich for example. Its 1 Year Step Lifetime Tracker deal currently offers an astonishingly low rate of 1.98% (Barclays bank base rate/BBBR + 1.48% for one year, then BBBR + 2.49% for the term) for borrowers with a 40% deposit or equity stake in their home.

Even though you're tied in with an early repayment charge (ERC) which extends way beyond the introductory period, (2% of the balance repaid until 31 January 2013) I can see why this deal might catch your eye.

Certainly, my colleague Christina Jordan thinks trackers are the best way to take advantage of today's current low interest rates. Yesterday, she argued that rates are unlikely to rise any time soon and rounded up the 13 best trackers available. Read her article here.

But with trackers comes uncertainty. In the Woolwich's case, the deal is pegged to the Barclays bank base rate, but who can say how that rate might change in the future? And while I agree with Christina that interest rates will remain low in the short-term, will they stay that way until the end of the tie-in period in 2013? I'm not so sure.

Of course, there are plenty of other good tracker deals without extended ERCs. Northern Rock, for example, offers a tracker deal with a current rate of 2.59% (bank base rate + 2.09%) until 1 January 2012. But then again, if the base rate starts climbing fast before the introductory period is over, you could get stung, especially if you're budget is already pushed to the brink.

So in this article, I'm going to make the case for taking out a fixed rate mortgage, instead.

Fans of fixes

First things first: are there any good fixed rate deals out there at the moment?

Unfortunately, while tracker mortgages have become much cheaper since the base rate has dropped to an all time low, fixed rate mortgages really aren't a million miles away from where they were prior to the financial crisis. According to lovemoney.com partner Moneyfacts, the average two year fixed rate mortgage is currently 5.06%, while average two year tracker rate is 3.76%.

So I wouldn't blame you for thinking fixed rates still look a bit pricey, especially when interest rates are so low.  

The fact is, even if you meet the criteria for the most competitive one or two year fixed rate deals, you'll still find the rates easily exceed 3%. And the longer you want to fix, the higher the rates will be.

So, is there any hope if you want to fix your rate for the longer-term? Here's a selection of the best fixed rate deals which last four or five years and scrape in under 5%. Let's take a look at exactly what's on offer:  

5 longer-term fixed rate mortgages under 5%

Source: Moneyfacts.co.uk and lender's websites. *Only available through mortgage brokers.

Lately, Northern Rock has stirred up competition in the fixed rate mortgage market with the recent launch of a new four and five year fixed rate deal. The four year deal offers borrowers a rate of 4.79%. The product fee is reasonable at £595 for purchases or £995 for remortgages, and the ERCs don't extend beyond the introductory period. But you'll need a deposit or equity stake of at least 30% to qualify. For more on just how brilliantly competitive Northern Rock's current range is, why not check out this video?

Meanwhile, HSBC is offering the cheapest five-year deal at 4.95% with a fee of £999 for borrowers who have at least 40% to put down. Northern Rock is just behind with 4.99% fixed until 1 January 2015.

At first glance these rates might look expensive, but over the longer term, I think they represent good value. Lenders aren't stupid - the reason they're offering trackers at much cheaper rates is because they anticipate that these rates will go up, and then you'll be stuffed. With a fixed raet, you're not taking that gamble.

So ask yourself this question: Do you think it's reasonable to pay a rate below 5% in return for knowing exactly what your mortgage outlay will be for the next four or five years?

Remember, on top of all that security, you'll have peace of mind - you won't even need to give interest rates a second thought during that lengthy fixed-rate period. You'll also have the added advantage of not needing to remortgage for several years, potentially saving yourself a small fortune in product fees. These fees often come into play whenever you switch to a new deal and can easily set you back £1,000 or more each time.

Above all, whatever you decide to do in the end, make sure you pick a deal which is affordable. And, if you finally plump for a tracker, you must be certain that you can afford the interest rate hikes that are surely on their way....

Get the right type of mortgage

If you're still not sure what type of mortgage to go for, lovemoney.com may be able to help.

First, get fee-free advice from one of our brokers at the lovemoney.com mortgage service

Next, adopt this goal: Cut the cost of your mortgage and pay it off early

Then, watch this video: Get through the mortgage maze

And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

Use lovemoney.com's innovative new mortgage tool to find the best mortgage for you online

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 4045 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 will revert to the lender's standard variable 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.

More: Eight frightening facts about your mortgage | Rate cuts at the bank own