There are some new types of home loans coming onto the market which are
being advertised at present. Several of the mortgage companies are
offering variation of them and they are being marketed as “lifetime”
loans. So might this be the end of the short-term mortgage? Not
necessarily so, it appears that there are still bargains out there for
those prepared to shop around.
Mortgage brokers usually advise discounted short term mortgages and
advise clients to regularly shop around after the two year discount has
come to an end to obtain an even better deal. These clients are known to
the insurers as “rate tarts”. But who can blame them for obtaining the
best possible deal, especially as the broker does all the work for them,
making the whole procedure painless and trouble free.
First of all, if you need to borrow over £150,000 the above advice is
still without a doubt the very best and asking your broker to shop
around for discounted rates is, in our opinion, essential.
For borrowers of less than £150,000, some of these new mortgages
appearing on the market initially sound tempting. They are classed as
low-rate “lifetime” loans. Abbey and Woolwich are two of the building
societies offering flat-rate low cost home loans, amongst others.
The Woolwich has a lifetime tracker mortgage rate which has a guarantee
of staying at 0.19 percentage points above base rate. At present the
Bank of England’s base rate is 4.50%, therefore the rate is 4.69%.
Conversely, the Portman Building Society’s two year fixed rate plan
presently stands at 4.19%, still cheaper than the Woolwich “lifetime”.
You do, however, have to factor in the cost of shopping around, which we
have listed:
- Legal fees £350 on average.
- Application fee £499.
- Valuation fee £300 on average.
- Deeds release fee £199.
This is worked out on a loan of £150,000. The above sums come to just
under £1,350 and the saving on interest over the Woolwich comes out at
£1,500. This means that there is a very small saving on the Portman deal
at two years. You would need to find another tempting deal and be ready
to switch to it at the end of this period as a 6.5 per cent rate would
come into force otherwise.
Abbey’s Flexible Plus tracker has a slightly higher rate than the
Woolwich, at 5.09% but, as the name implies, it is very flexible and
will allow you to reduce the amount of money borrowed by offsetting your
mortgage and also permitting you to withdraw money from the mortgage.
One advantage is that you can make use of the mortgage as a type of
savings account. Money withdrawn is charged at the mortgage rate.
To sum up, these new loans do seem to be competitive, but the mortgage
market alters all the time if you’re out for the very best deals, check
with your on-line broker and find out what’s available out there.
They’ll search the whole market and get you the very best deal. That’s
what they’re there for!
Resource Box
Mortgage Detective is a UK based finance site that specialises in life
insurance and other mortgage
related financial services.
