Mansfield Building Society has established a two-year discounted rate mortgage that has an extended tie-in of one year.
The mortgage has a 2 per cent discount for two years with a current payable rate of 4.49 per cent and is available for loans up to 95 per cent with a maximum loan of £250,000. Borrowers who pay off the mortgage during the first three years must pay an early redemption penalty at a flat rate of 3 per cent of the original advance.
According to Moneyfacts on September 19, 2001, the most competitive mortgage of this type is from Bristol & West, with a 1.65 per cent discount to give a current payable rate of 3.10 per cent. Although it has a lower payable rate than the Mansfield mortgage, borrowers are tied in for an extra three years after the discount period ends.
This means paying the mortgage off during the first five years incurs a penalty that reduces from 5 per cent of the amount repaid in years one and two, 4 per cent in years three and four, then 3 per cent in year five.
Some borrowers may prefer Bristol & West's mortgage if they decide the lowest possible rate is an advantage which outweighs the drawback of a longer extended tie-in. Others may be attracted to the Mansfield mortgage because they are tied in for a shorter period. However, the economic uncertainty following terrorist attacks on the US has led to another cut in the Bank of England base rate, which now stands at 4.75 per cent. This may lead to borrower finding competitive two-year discounted rates that do not tie them in beyond the discount period.