Mortgages: It's time to get your fix

David Burrows surveys the deals that will lock you into low rates
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The Independent Online
ocking into a 7.75 per cent fixed-rate mortgage just over a year ago was probably not the cleverest decision I have ever made. I could have been paying a variable rate of (at most) 6.85 per cent by now.

So are fixed rates even worth considering in the present climate? There is a strong argument to get on the boat now as rates aren't going to go much lower than the present "best deals" of around 5.5 per cent.

If you can't bear to lock yourself into a fix, you could consider a discounted rate, which shaves a small amount off standard mortgage rates for a fixed term.

One feature in favour of discount mortgages is that they can offer greater flexibility. For instance, if you want to make partial repayments or overpay on your monthly mortgage repayments, you can get good discount deals that do not have redemption penalties.

It is also worth considering deals that combine discounts with a cap - meaning your interest rate can't go any higher than the advertised capped rate. These deals are rare at the moment (although broker John Charcol offers a package), but you are getting the best of both worlds in effect. You can also switch to a fixed rate with protection at no cost.

The abolition of mortgage indemnity guarantees has been welcomed by consumers. The MIG was a pointless form of insurance from the customer's point of view, as it basically meant you paid for the insurer to buy an insurance policy which paid out in the event of you defaulting on the loan.

And even when the MIG paid out, the lender could still come after you for the missing payments and demand the sale of the house.

As so often in these cases, the lenders have appeared to be extremely generous by dumping the MIG - and then come up with some clever ways to claw back the money.

The Halifax took the lead last year, abolishing the MIG on deals of up to 95 per cent of the property's value. Now most lenders don't charge an MIG unless you want to borrow more than 90 per cent.

But you must be aware of the fact that lenders could be recouping what they have lost on MIG payments by charging extra interest on higher "loan to value" deals - loans over 95 per cent.

The Alliance & Leicester's five-year fixed-rate deals, for example, offer 5.75 per cent up to 80 per cent; 5.95 per cent up to 90 per cent; and 6.25 per cent for loans of 90 per cent plus. The Bradford & Bingley also covers its MIG losses in this way.

Other hidden costs to look out for are compulsory insurance policies such as buildings and contents, and Accident, Sickness and Unemployment insurance (ASU).

You will always pay over the odds if there is compulsory insurance as part of the package because you cannot shop around. Some lenders have compulsory buildings but not contents insurance.

It is worth remembering that if you are buying a flat as a lease-holder, in theory it should be the freeholder who is responsible for the buildings insurance; you should not be liable.

In some cases, lenders will charge a pounds 25 administration fee if buildings insurance is not arranged with them. Additionally, if there is an electronic transfer of funds from the lender to your solicitor (on completion), there is usually a charge of pounds 20.

If these charges are significantly more, you should consider looking at all the small print elsewhere in the deal.

It is always a good practice to check how and when the first mortgage instalment will be paid. With some lenders, the first mortgage interest payment is demanded a month from completion or at the beginning or end of the month. Some collect in advance or in arrears.

The bottom line is that your first cheque may have to include two monthly interest payments, so budget for it.

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