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!