Scarborough Building Society has introduced a five-year capped-rate mortgage that is available for loans of up to 95 per cent of valuation.
The mortgage is capped at 5.45 per cent for five years and an arrangement fee of £295 is payable. If the mortgage is paid off during the first five years, borrowers must pay 5 per cent of the amount repaid as an early redemption penalty. A £250 cashback is offered as an extra incentive to take out this mortgage.
Capped-rate mortgages offer peace of mind for borrowers who know the maximum they will pay even if interest rates rise. This could be useful since interest rates have been falling for so long that an increase could be around the corner. However, unlike trackers, any fall in interest rates may not be passed on immediately.
According to Moneyfacts on February 7, 2001, Scarborough Building Society is one of five lenders offering capped rate mortgages. Its mortgage is the most competitive in terms of capped rate, but it is the only one that lacks flexibility.
Northern Rock is offering a flexible mortgage capped at 5.99 until April 1, 2007 for loans up to 95 per cent of valuation. It allows borrowers to make underpayments, overpayments and lump sum withdrawals, take payment holidays and benefit from the daily calculation of interest.
Although the capped rate is higher than the Scarborough mortgage, the cashback is also higher at £500 for house purchase and £1,000 for remortgages. Choosing between the products will depend whether borrowers are feel Scarborough's low capped-rate or Northern Rock's flexible bells and whistles are more important to them.