Fix your mortgage at 2.69%!

It's not just trackers that have some astonishingly low rates on offer - fixed rates are falling too!

Having only taken my first steps onto the property ladder last year, I have a long way to go before I can think of paying off my mortgage (barring a lottery win of course).

However, for those that are entering the final years of their mortgage term or have got a lot of equity in their homes, a new mortgage has been launched allowing them to fix their mortgage at an incredible low rate of 2.69%.

The one-year rolling rate

Yorkshire Building Society, a mutual which is trying to make a big splash this year with the launch of some awesome looking deals, has designed a clever little product for those borrowers who only need to borrow a sum of 35% or less of the value of the property.

The Rollover Mortgage is a rolling one-year fixed rate mortgage, at an initial rate of an unbelievable 2.69%, and with a very low product fee of £495. It comes with free legal assistance, free valuation and a year’s free home insurance. What’s really clever about it is that at the end of the first year, borrowers will be notified of a new one-year fixed rate they can move to, or else they can move onto the lender’s SVR, or even simply remortgage again without penalty.

It’s a brilliant, innovative mortgage, and should be very tempting to borrowers nearing the end of their mortgage. However, all of us should be looking at fixed-rate mortgages in the current climate.

Why you should fix

The argument behind going for a fixed rate mortgage is pretty simple, and it’s one I’ve been making for what seems like forever. We all know that Bank Base Rate is at a record low. That cannot last, and at some point it will have to start increasing.

Indeed, chances are those rises will come sooner rather than later. One member of the MPC last month voted for a rise in base rate, the first time in two years that that has happened, due to fears over rising inflation. It will be interesting to see how quickly other members of the committee join him.

And when Base Rate does start moving, mortgage rates will start to climb northwards too. Yes, if you move to a fixed rate mortgage right now from a variable deal, chances are your payments will increase a little straight away. But the fact remains that current fixed rate deals are, historically, exceptionally low.

And if you wait until Base Rate starts to increase before you remortgage, chances are the fixed rate deals on offer by then won’t be as attractive as those you can get your hands on right now.

The length debate

Of course choosing to fix is one thing, but the length of the mortgage is just as important. Should you fix for the short or the long-term?

I can see the appeal of a short-term fix. For starters, the rates on offer tend to be incredibly low, with the option to fix your rate at less than 3% so long as you have a 25% deposit. That’s awfully tempting.

Fixing for the short term also allows you to be a bit more flexible. In two years' time you can scan around the market again for a new deal, hoping to find a more competitive rate than you’re currently paying and save a few quid. It’s also a bonus if you reckon you will likely be moving home in a couple of years, as you won’t need to worry about ensuring the mortgage is portable or whether you’ll have to fork out for early repayment charges.

Safety first

However, my own view is that you should fix for as long as you can. Sure, if you take a two-year deal now, then you can try and find a cheaper one in two years’ time. But what if rates have gone up again? It’s not exactly out of the realms of possibility that Bank Base Rate will be a fair bit higher in 2012 than it is right now.

What’s more, if you stick to short term deals every time you remortgage you’ll have to fork out on another product fee. And at around £1,000 a pop, that looks to me like chucking your money away.

Here are some of my favourite fixed-rate deals, whether you want to fix for a couple of years or going for the long-term.

10 top short-term fixed rate mortgages

10 top long-term fixed rate mortgages

More: Pay nothing for your mortgage! | House prices fall for third month in a row

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.