Principality Building Society has introduced a five-year discounted rate mortgage for loans of up to 95 per cent of valuation.
The discount option 5 mortgage has a 0.80 per cent discount until December 31, 2006, which gives a current payable rate of 5.15 per cent. There is no arrangement fee and a £250 cashback is given to borrowers. However, if they pay the mortgage off during the discount period, they must repay the cashback as an early redemption penalty.
According to Moneyfacts on October 1, 2001, NatWest Mortgage Services is offering a similar five-year discounted-rate mortgage at a less competitive rate of 5.29 per cent. This mortgage has a 1.20 discount which is reclaimed if borrowers pay off the mortgage within the first five years. This is a higher penalty than Principality's.
One potential downside is that Principality adds 0.19 per cent to the payable rate if borrowers decide not to take the society's buildings and contents insurance. This insurance protects fixtures and fittings as well as the frame of the house, but borrowers will not always get the best deal if they allow their lender to arrange it for them.
NatWest Mortgage Services allows borrowers to shop around for buildings and contents insurance without penalising them. However, some borrowers may see this as too much hassle and go for the lender's insurance anyway.