In the current mortgage market finding the cheapest fixed rate mortgage deals can be frustrating.

People who thought they were getting the cheapest fixed rate 6 months ago are now seeing rates almost halved by comparison.

Fixed rates have been changing on an almost weekly basis and as the Bank of England continues to lower the base rate, fixed rate mortgages have been gradually coming down.

At the moment the most important factor regarding mortgage rates is the ‘loan to value’.

For example, if you have a £90,000 mortgage on a property worth £100,000 the ‘loan to value’ is (£90,000/£100,000) * 100 = 90%

If the mortgage is only £60,000 the ‘loan to value’ is (£60,000/£100,000) * 100 = 60%

In the current market, because mortgage lenders do not want much exposure to risk they are offering their cheapest mortgage rates to ‘low risk’ customers.

If they had to repossess a property with a 60% loan to value mortgage and then had to sell the house, even if they were only able to sell it for 80% of the true value, there would be enough money to clear the debt.

If they have to repossess a property with a 90% mortgage and they can only sell the property for 80% of its true value they would lose money.

This is why the cheapest fixed rate mortgages are only being offered to low ‘loan to value’ customers.

(Fixed rates shown are accurate as of 25/03/09)

At 60% loan to value the current range of fixed rate mortgage deals start with rates as low as 2.29% (fixed until April 2010) with a £995 lenders fee.

So this means adding £995 to the mortgage and having to remortgage in a year which is likely to also cost money. This may be attractive to people with recently reduced incomes in the short term but more costly in real terms in the long run.

The second lowest rate is 3.19%

However the lenders arrangement fee for this low rate is 1.5% of the total loan which is equal to £15 per £1000 borrowed.

If you borrow £200,000 the fee would be £3000 which isn’t the cheapest fee available.

The cheapest fixed rate mortgage with no lenders arrangement fee is 4.29% from Alliance & Leicester.

It’s important to take all of the fees into consideration because they will determine which mortgage is actually the cheapest overall.

Some will have high fees but the cheapest monthly repayment because of a low rate but they may work out more expensive when the fee is added to the total cost compared to a higher rate mortgage with a lower arrangement fee.

To successfully navigate the minefield of mortgage rates and fees you can compare mortgages online or even speak to a qualified mortgage adviser

Fixed rate options (accurate as of 25/03/09):

Cheapest by year:

2 year – 3.19% (2% fee)

3 year – 4.09% (£999 fee)

5 year – 4.29% (£995 fee)

Cheapest by ‘loan to value’

60% – 4.09% (£999 fee)

75% – 4.09% (£999 fee)

80% – 5.19% (£599 fee)

90% – 6.59% (£995 fee)