Given historically low interest rates, many banks and building societies over the last few weeks have launched 1% and sub 1% mortgage rate deals. On first glance they look extremely tempting.
With the same mortgage provider, we decided to compare a 1% pa 2 year fixed rate with their 1.27% pa 5 year fixed rate. Borrowing £150,000 on a £200,000 property valuation over 25 years, capital and repayment basis.
Product |
Application Fee Start |
Remortgage App. Fee End Year 2 |
Remortgage App. Fee End Year 4 |
Monthly Mortgage Payment |
Total payments 5 years |
*1% pa fixed 2 years with refix rate end year 2 and 4 |
£995 |
£995 |
£995 |
£565pm X 60 months |
£36,885 |
1.37% pa fixed for 5 years |
£995 |
N/A |
N/A |
£584pm X 60 months |
£36,035 |
*Assumes able to remortgage on 1% deal each time rather than rates increasing.
You can either go for the security of a 5 year rate or chance it with lower payments now in the hope that you do not have to pay further arrangement fees or securing lower rates, both may be unlikely.