Six Top Long-Term Mortgage Deals
A five or 10-year fixed rate should ensure you see out the credit crunch. But would you be better off with a lifetime tracker, instead?Commitment. The very word may send a shiver down your spine. But when it comes to your mortgage deal, commitment is no bad thing. In fact, a long-term mortgage deal at a time of economic uncertainty can be a very good idea. Most borrowers in the UK are on short-term, two-year deals. But in the US and most of Europe, long-term fixed rate deals which last 10 years or more are much more popular. And it's easy to see why. With a long-term fixed rate, you go into the mortgage safe in the knowledge that your payments will not rise beyond a set level that you know you can afford. In fact, many borrowers in Europe would question why anyone would take out a mortgage, not knowing what their payments will be in two years' time. Nearly one-and-a-half million borrowers are due to come off very low, two-year fixed rates this year. If you're one of these borrowers, and are sitting pretty on a rate below 5.49% (the current lowest two-year fixed rate, available from Chelsea Building Society), then you may be kicking yourself you didn't opt to fix your payments at a lower rate for a longer period. What's more, with a long-term fixed rate, you can save yourself thousands and thousands of pounds in mortgage fees over the years. You also save yourself the hassle and stress of remortgaging. Top Long-Term Fixed Rates Here's my pick of the top long-term fixed rates available right now, for different-sized deposits: Lender Rate Length of Fixed Rate Min Deposit Product Fee Penalty If you Want To Remortgage ASTRA FROM NORWICH & PETERBOROUGH BUILDING SOCIETY 5.58% 10 years 25% £495 5% of outstanding balance for first seven years, then 4%, then 3%, then 2% COVENTRY BUILDING SOCIETY 5.99% 10 years (but no penalties apply after 5 years) 10% £495 4% of sum repaid until 20th June 2011 MANCHESTER BUILDING SOCIETY 5.99% 25 years (but no penalties apply after 10 years) 15% £895 3% of outstanding balance for first 10 years As the table shows, the big problem with long-term fixed rates is that you're usually tied in for at least five years, with heavy penalties if you decide to remortgage during this period. That's why I particularly like the deal from Manchester Building Society mentioned above. You can stay on the fixed rate for 25 years if you want to, but you can also remortgage at any time without any penalties after just 10 years. Similarly, with the Coventry Building Society deal, you can stay on the fixed rate until 2018 if you want to, but no penalties apply if you remortgage at any point after 20th June 2011. But in an economic environment where interest rates are predicted to fall, is a long-term fixed rate really the best option? Wouldn't you be better off with a deal which follows the Base Rate? Top Lifetime Trackers If you don't like being tied down and you want to be sure to benefit from any falls in the Base Rate, then you might find a lifetime tracker more to your liking. With this type of deal, your mortgage rate follows the Base Rate at a set margin for the entire lifetime of the mortgage - so 25 years, if you have 25 years left. Again, with a lifetime tracker, you need never suffer the hassle of remortgaging or shell out thousands of pounds in fees for a new deal ever again. Best of all, lifetime trackers are extremely flexible. Most will not tie you into the deal with penalties for the full term of the tracker - so even if interest rates did increase, you could potentially remortgage to a fixed rate whenever it suited you. Here's my pick of the top lifetime trackers available right now, for different-sized deposits: Lender Rate Min Deposit Product Fee Penalty If you Want To Remortgage MELTON MOWBRAY BUILDING SOCIETY Base Rate + 0.89% (so currently 5.89%) 25% £999 3.25% of the outstanding balance, but only for the first 2 years SHEPSHED BUILDING SOCIETY Base Rate + 1% (so currently 6%) 15% £999 None at any time BRITANNIA BUILDING SOCIETY Base Rate + 1.5% for the first 2 years, then Base Rate +1.7% for the remaining term (so currently 6.5%) 10% £895 None at any time Of course, the downside of lifetime trackers is that, again, you have no long-term security. No one has a clue where the Base Rate will be in two years' time, never mind 25 years' time. Still, your rate is always going to be relatively competitive in relation to the new deals available on the market, since these are usually priced broadly in line with the Base Rate. More: Five Top Two-Year Deals> For more information about any of these deals, speak to a broker at The Motley Fool's award-winning Mortgage Service.