Fixed rate mortgages are proving popular at the moment as borrowers seek to take advantage of the low interest rate environment and lock into a competitive rate before they start rising again.
A new three-year fixed rate deal has just been launched by Yorkshire Building Society. It is the lowest three-year rate on the market and is available only through moneysupermarket.com. So if you’re looking for a new mortgage, read on to find out if this could be the deal for you…
What’s the deal?
Fixed until 31 July, 2013, this exclusive product is charging a leading rate of 3.69%. It is available to both first and next-time buyers as well as those remortgaging. However, you’ll need a deposit of at least 25% to qualify.
There is an arrangement fee for this loan of £995, £195 of which needs to be paid upfront, while the remainder can be added to the loan or paid at completion. Both fees are non refundable.
Any catches?
As with most fixed rate mortgages, an early repayment charge applies during the fixed term. This means you’ll be charged a penalty if you want to redeem your loan during that time. You’ll have to pay 3% of the outstanding balance to get out of the mortgage early. Once the fixed rate period ends, you can remortgage without penalty.
Despite having the lowest three-year rate, this product won’t actually be the cheapest option for all borrowers. It is only market-leading for loans of around £140,000 or more.
If you’re looking to borrow less than that, Newbury Building Society’s three-year fix will actually prove to be better value. It has a slightly higher rate at 3.87%, but the set-up costs are lower at just £500, so on smaller loans it will work out cheaper than the Yorkshire deal over three years.
Verdict
Two-year mortgages tend to be the most popular with borrowers looking to fix their monthly repayments because they have the lowest rates.
However, given where we are in the interest rate cycle, the risk of fixing for only two years is that you’ll need to remortgage just as interest rates are on the up. An increasing number of people are therefore choosing to lock into a longer-term deal.
And certainly, the fact you can currently fix your mortgage at rate under 4.00% is a great opportunity and this product from Yorkshire is likely to prove hugely popular. Consequently it may not be around for long (the way fixed rate mortgages are priced means the lender has a set tranche of money to lend out at a certain rate and once it’s gone there’s no guarantee that it will be able to offer a new product at the same rate).
Therefore, if you’re interested in this three-year mortgage don’t hang around, apply now.
However, as we highlight, it won’t be the right product for everyone. Certainly if you’re borrowing less than around £140,000 there’s a better three-year option. You may also decide that you’d prefer longer-term security and that it might be worth paying a slightly higher rate for a five-year fix.
Also, the fact a 25% deposit is required means that not everyone will qualify, although Yorkshire is offering another version of the deal that is available for mortgages up to 85% of the property, with a rate of 4.59%.
Top Tip
Look beyond the headline rate. This three-year fix from Yorkshire is a perfect example of why it’s vital to look beyond the rate when comparing mortgages. On the face of it, it looks as though it will be the best option if you’re wanting to fix your mortgage for three years and for many borrowers it will be. However, it all depends on how much you are looking to borrow.
As well as the rate, it’s imperative to look at the set up costs associated with a mortgage. In order to identify which product will be best value for you, you need to work out the total cost over the term of the deal: in other words, how much you’ll pay once you tot up your monthly repayments and any fees you’ll incur.
Generally, if you’re borrowing a large amount, it’s often worth paying a high fee in return for the lowest rate of interest. With smaller mortgages, you may be better off with a slightly higher rate if the set-up costs are lower.
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