Focus on: 2.89% three-year fixed rate mortgage

Published:

07 December 2011

Topic:

News,Money,Mortgages,Product review

In these difficult times, Chelsea Building Society's new 2.89% fixed rate mortgage can provide homeowners with peace of mind that their payments won't change for three more festive seasons to come.

With most of us feeling the pinch, knowing exactly what our outgoings will be for the next few years provides valuable security, which is why fixed rate mortgages tend to be so popular.

Here, we take a look at what the Chelsea mortgage, which is one of MoneySupermarket's '12 Deals of Christmas', offers in more detail...

What's the deal?

Chelsea is offering a fixed interest rate of just 2.89% for the next three years in exchange for a 40% deposit. When the deal expires on January 31 2015, it will revert to the lender's Standard Variable Rate.

This is currently priced at 5.79% but is likely to have changed by then.

The Chelsea deal is open to homebuyers and remortgagers applying for a minimum loan of £25,001. Existing customers at Yorkshire Building Society will qualify but not existing customers at Chelsea.

The deal is available exclusively through MoneySupermarket by selecting "3154 - MONEYSUPERMARKET XMAS DEAL" from our list of mortgages.

Any catches?

The fee on this deal stands at a fairly hefty £1,495 (£195 of which is payable on application and is therefore non-refundable).  When you factor in the charge it makes an Annual Percentage Rate (APR) of 5.3%, which looks less appealing.

The early redemption charge (ERC), which applies until the deal expires, is also levied at a flat rate of 3%. This is not as favourable as a tiered ERC when the charge reduces with each year of the deal.

However, penalty-free overpayments of 10% each year are permitted.

What's the verdict?

For applicants with enough equity or deposit and who are looking to protect themselves against rising interest rates for the medium term, the Chelsea deal's low rate - even with the fee - makes it a real Christmas cracker.

However, you will have to be sure you don't want to redeem the mortgage in the next three years as the ERC will wipe out the benefit of the low rate several times over.

Top tip

Before going for any fixed rate mortgage deal, think carefully about how long you want to lock in for.While it is impossible for anyone to know when interest rates are going to rise, you need to think about what you would do in the event of a 'payment shock' when your deal comes to an end.

If you think it is going to be a while before rates start to rise, then you may want to consider a five- or even 10- year fixed rate, so that you will have peace of mind your payments won't change for even longer.

But while long-term fixed rate mortgages are usually portable, you must bear in mind that if at any point during the term of your deal you want to move to a property which requires a bigger mortgage, you may have to borrow any additional money you need at a higher rate - and there are no guarantees that your mortgage provider will agree to lend you any extra money in the first place.

Please note: Any rates or deals mentioned in this article were available at the time of writing.

Related Links

• Compare a range of UK mortgages
• Confused about which mortgage to go for? Speak to a qualified adviser