Northern Rock has introduced a two-year fixed rate flexible mortgage at 5.69 per cent until January 1, 2004.
The mortgage is available for loans of up to 95 per cent of valuation and interest is calculated on a daily basis. It also allows overpayments, underpayments, payment holidays and lump sum withdrawals to be made.
However, if borrowers pay the whole mortgage off during the fixed rate period, they must pay 2 per cent of the original advance as an early redemption penalty.
Research from the Nationwide in September 2001 shows that overpayments are more likely to be made by those with an outstanding mortgage of up to £25,000. Borrowers with loans of more than £150,000 are the least likely to overpay. It also shows most borrowers 48 per cent overpay by between £1 and £20 a month, while just 3 per cent make overpayments of between £250 and £500 a month.
According to Moneyfacts on September 21, 2001, Alliance & Leicester offers a more competitive deal. This mortgage is fixed at 5.59 per cent until December 31, 2001 for loans of up to 95 per cent of valuation. Like the Northern Rock deal, it is fully flexible, but borrowers who use its lump sum withdrawal facility must withdraw at least £500. There is also an early redemption penalty for borrowers who pay the mortgage off during the fixed rate period. This amounts to six months' interest, which is higher than Northern Rock's penalty.