While there are some very competitive two and three-year fixed rate deals currently available, if interest rates change in a year or so, then these will only provide short-term protection against higher payments.
Longer term five-year fixes however, can offer greater peace of mind that you know exactly what your payments will be for several years to come, whatever happens to the base rate.
The good news is there are are plenty of deals available below 4%. The Post Office, for example, has just launched a five-year fixed rate mortgage at 3.55%. It's not the lowest rate currently available, but there is no arrangement fee so could it be the best option for some borrowers?
We take a closer look...
What's the deal?
The Post Office five-year fixed rate mortgage is priced at 3.55%, has no arrangement fees, and comes with a free standard valuation. For those looking to remortgage, the deal also comes with free standard legal fees.
The maximum amount you can borrow is 75% of the property value, so it won't suit those with only a small deposit to put down or with limited equity if remortgaging.
You can make overpayments of up to 10% a year, and the minimum overpayment you can make at any time is £500.
Any catches?
While the fact that this mortgage does not come with arrangement fees is attractive, there are lower five-year fixed rates available. Chelsea Building Society, for example, is currently offering a five-year fix priced at 3.19%. This deal requires a minimum deposit of 30% but comes with a hefty £1,495 arrangement fee.
According to calculations by MoneySupermarket, the Post Office deal is cheaper for loans up to £127,000, but if you are borrowing more than this, the Chelsea deal is more cost-effective.
Verdict
The Post Office deal is great for anyone looking for a relatively small mortgage who does not want to have to pay an arrangement fee. It is particularly suitable for those looking to remortgage, as it comes with the added benefit of no legal fees as well as the free valuation.
You will, however, need a deposit of 25% or the equivalent amount of equity in your property to qualify, which could prove a stumbling block for first-time buyers, or those remortgaging who borrowed heavily initially and have not seen any improvement in the value of their home in recent years.
Top tip
If you are planning on locking into a five-year fixed rate mortgage, ask if it is portable, so that you can transfer it to a different property if you plan to move home. Bear in mind too that if you do think you will move and you might need a bigger mortgage, any additional borrowing is likely to be at a different rate.
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct. We're free, independent and compare all UK credit cards, as well as offering exclusive deals you can't get anywhere else. Contact MoneySupermarket.com at Moneysupermarket House, St David's Park, Ewloe, Flintshire, CH5 3UZ. © Moneysupermarket.com Ltd 2011.
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