Focus on: Should you fix your mortgage at 2.19%

Mortgage rates remain in freefall and now First Direct has lowered the interest rate on its three-year fix from 2.29% to 2.19%.

But how does this compare to other deals on the market and is it the right mortgage for you?

What's the deal?

First Direct has re-priced its three-year fixed rate mortgage at 2.19%, reverting to 3.69% after three years.

Available on borrowing up to £1,000,000, the First Direct mortgage requires a deposit of 35% and you will need to stump up a £1,999 fee on top. The overall cost for comparison is 3.5% APR and early repayment charges apply.

The latest offering from First Direct sits just behind Chelsea Building Society's market leading three-year fix priced at 1.99%, reverting to 5.79% after three years (overall cost for comparison is 5.1% APR). The deal has a £1,545 fee and also requires a deposit of 35%. Again, early repayment charges apply.

Who's it good for?

First Direct's three-year fix is a great option for those who have significant equity in their home (or can stump up a large deposit) who would like to fix their mortgage repayments for three years. It offers a good compromise for borrowers who feel a two-year fix is too short, but five years is too long.

Any catches?

The main catch with the First Direct three-year mortgage is that it isn't market leading. Chelsea Building Society offers a three-year fix at a lower rate of 1.99% and it also has a lower fee of £1,545.

If you had a mortgage of £150,000, this means you'd pay £25,399 over three years (including the fee) with First Direct, but £24,405 with Chelsea.

And while the 35% deposit requirement will make First Direct's mortgage more accessible to some borrowers (when compared to the 40% deposit a number of competitive mortgages ask for), it will remain unaffordable for many others.

You'll also need to ensure you are happy to commit to a three-year deal. Should you need to get out of the mortgage early, you will have to pay an early repayment charge. This stands at 3% of the original loan amount in the first year and 2% in any subsequent years within the three-year period.

What's the verdict?

First Direct's three-year fix priced at 2.19% is a competitive offering and one that's well worth considering.

It can of course be beaten by Chelsea Building Society's three-year fix at 1.99%, but where First Direct stands out is with its excellent customer service. In fact, it was winner of 'Best Overall Provider 2012' in MoneySuperMarket's Supers Awards. So if good customer service is a priority, First Direct's mortgage could be for you.

If you'd prefer not to fix your mortgage repayments for as long as three years though, there are plenty of competitive two-year deals to choose from. Chelsea Building Society, for example, offers a two-year fix priced at 1.64%, reverting to 5.79% after two years. It has a £1,545 fee and the overall cost for comparison is 5.4% APR. You'll need a 35% deposit and early repayment charges apply.

Conversely, if you'd prefer to fix your repayments for longer than three years, Yorkshire Building Society offers a five-year fixed rate mortgage priced at 2.44%, reverting to 4.99% after five years. It has a £1,345 fee and the overall cost for comparison is 4.3% APR. You'll need a deposit of 35% and again, early repayment charges apply.

Top tip!

Given that mortgage fees are currently so high, it can sometimes work out cheaper to opt for a mortgage with a higher interest rate but lower fee.

For example, Norwich & Peterborough Building Society offers a three-year fixed rate mortgage priced at 2.29% with a £295 fee. It requires a deposit of 35%.

If you had a £150,000 mortgage, over three years you'd pay £23,947 with Norwich & Peterborough, which is cheaper than both the £25,399 you'd pay with First Direct and the £24,405 you'd pay with Chelsea. 

So it pays to do the maths. If you're unsure which mortgage is right for you, contact our mortgage partner London & Country for free, independent advice on 0844 209 8725.


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