The top lifetime mortgage deals

We show you the top lifetime mortgage deals, both fixed and tracker, and give you some tips on mortgage strategy over the next few years.

This articles was first sent to Fools as lovemoney.com Afternoon email.

A few weeks ago I told you about the top long-term fixed-rate mortgages. I compared seven- and ten-year fixed deals with the top tracker. Unfortunately, I blithered too long to fit in my tables for lifetime deals, and so now, in the words of a surgeon during a gallstones operation, 'Here they are, and I hope I got them all':

The top lifetime-fixed mortgage

All my calculations are based on a £130,000, 25-year repayment mortgage. Further notes at the bottom of the article.

Small table. When I last checked a few weeks ago I recall there were two or perhaps three more lifetime fixed mortgages. I couldn't find them this time, so perhaps the lenders have filled their quotas and withdrawn their mortgages. In any case, my notes tell me that this 85% LTV loan from Manchester Building Society beat the other lifetime fixes, even though at least one of them was a 60% LTV deal.

This offer is for first-time buyers and remortgaging customers, and you can choose a mortgage length between 10 and 30 years. There is an early redemption charge for ten years (like all the lifetime fixes I found originally).

This mortgage is excellent for very long-term budgeting, and it's historically a fairly low rate, so it's likely you'll do quite well with it provided your circumstances don't change dramatically. That's a big possibility over such a long period.

The top lifetime tracker

This table assumes interest rates won't rise, which of course they will. Even so, First Direct's offset lifetime tracker mortgage (1.89% above the base rate) continues to wipe the floor with all competition.

This deal allows you to offset your savings, it's portable and there are no early-repayment charges, so you are free to switch to a new deal without any penalties.

Which mortgage to take

Although this comparison is interesting, I find it almost redundant, as we have no idea where interest rates will go over 25 years. If I had to choose one of these and stick with it for 25 years I'd pick the fix. But if, like me, you prefer to remain flexible, then a tracker or a cheaper, shorter fix of five to seven years makes more sense.

I wouldn't fix for less than five years in this market though. Imagine: you fix for two years and in 12 to 18 months interest rates start to rise rapidly. That could easily happen when the economy starts to recover. Your two-year fix might end just in time for interest rates to sprint past them. Bad timing. Fix for longer, or not at all.

If interest rates don't rise this year, a person with a £130,000 mortgage would save £2,640 with the First Direct's tracker versus  Manchester's fixed deal. This extra money can also be thrown at the mortgage, saving you huge amounts of interest in the years ahead. If the base rate rises, they'll have to do so by more than 3% before the First Direct tracker is more expensive than the Manchester Building Society fix.

Be ready for higher interest rates

If I had a tracker and the Bank of England's base rate remains low for many more months, I would be worried about the possibility of rapidly increasing interest rates when the economy starts to recover. Therefore, at the first real sign of imminent recovery, I'd get into a fixed deal of at least five years.

A 'real sign of imminent recovery' could be strong data that there's a turnaround, such as a three-month period where GDP hasn't declined. Some people may want to keep an eye on the stock market, which is often one of the earliest signs of recovery, but that is a little more speculative and may be several months too soon.

My favourite sign of an imminent recovery would be the first increase in the base rate (but see my next paragraph for a caveat). Whatever sign I use, I would apply for a new mortgage the same day the data came out, before the mortgage lenders have time to react. Once they do, fixed-deal prices won't be so competitive.

However, there's no certainty that the Bank of England will make the correct decision on the base rate. Indeed, the bank may have been so scarred by recent experiences that it will raise the base rate too early.

I suggest then that you keep a close eye on regarding this. If it seems that the Bank has been pressured into raising the base rate too early, it may be best to wait a little while before you switch to a fixed-rate mortgage.

> Compare mortgages with lovemoney.com

Notes on the data in this article:
All pound figures are rounded. Raw data is from Fool.co.uk, Moneyfacts, and the lenders' websites, but revised based on my own calculations. The total cost factors in whether fees are added to the mortgage or paid up-front.
The 'Total fees' columns includes all fees and charges: arrangement fees, estimated valuation fees, transfer of funds fees, higher lending charges, redemption fees, extended early-repayment charges and an estimate for legal fees of £250, where appropriate.

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