People arranging a mortgage have to decide what type of mortgage deal to go for.
A fixed rate may be better if rates are going up but a variable rate may be a better choice if rates are coming down.
One way of dealing with this problem is to go for a rate that does not have any penalties if you redeem the loan.
This would mean that if you made the wrong choice about which way interest rates are going then at least you could change to another deal at a later date.
This type of deal has built-in flexibility, so the rates on offer are not the keenest on the market but they are still surprisingly competitive.
Some of the better penalty-free deals available include:
A short-term tracker rate: If you want flexibility and think rates might be coming down in the short term then Alliance and Leicester is offering a penalty-free tracker rate for two years. The rate is Bank of England base rate plus 0.89%, which is actually quite competitive and gives a starting rate of 5.89%. The arrangement fee is 2% of the loan amount, although it may be added to the loan.
There are no penalties other than a deeds release and discharge fee of £295 on full redemption of the loan. The loan is portable and the maximum amount you can borrow is 75% of the value of the property.
A long-term tracker rate: If you think rates might be coming down for the longer term. then having a long-term tracker rate could end up being very good value for money. Abbey has a lifetime tracker with a starting rate of 6.43%, which is Bank of England base rate plus 1.43% for the full term of the mortgage. There is an arrangement fee of £1,349, which can be added to the loan and a booking fee of £150, which must be paid up front. This deal also offers an offset facility, so if you have any savings they can be offset against your mortgage amount to reduce the term of your mortgage. There are no redemption penalties, but there is a deeds-release fee of £225. The loan is portable and is available up to 75% of the value of the property.
A lower-fee, penalty-free rate: If you think the arrangement fees on the deals above are a bit too steep, then the Royal Bank of Scotland has a lifetime variable rate deal of 6.7%, which also comes with an offset facility and a linked current account. There are no booking or arrangement fees for the deal and there are no redemption penalties at any time. The loan is portable and the maximum amount you can borrow is 75% of the value of the property.
Tim Twiddy is managing director of Atlantic Investors. For more information call 0800 163 659.