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Teacher&#39s ties in fixed rate

Teacher&#39s Building Society has introduced a three-year fixed rate mortgage for loans of 95 per cent of valuation.

The interest rate is fixed at 6.25 per cent until November 2, 2004 and borrowers who pay the mortgage off early face an extended redemption penalty for one year. This penalty is set on a sliding scale for the first four years. In year one, borrowers pay 4 per cent of the amount repaid as a penalty, 3 per cent in years two and three, then 2.5 per cent in year four.

According to Moneyfacts on August 20, it is possible to get a three-year fixed rate mortgage which is more competitive and has no extended tie-in. Portman Building Society&#39s three-year fixed rate mortgage is fixed at 5.39 per cent until October 1, 2004 and borrowers only pay an early redemption penalty if they pay off the mortgage before that date. This translates to a flat penalty of 3 per cent of the amount repaid, which is lower overall than Teacher&#39s Building Society.

Teacher&#39s Building Society charges a lower mortgage indemnity guarantee (MIG) at 7 per cent compared to 8 per cent charged by Portman Building Society. However, Portman Building Society does not charge this to borrowers unless they have loans above 90 per cent of valuation. Teacher&#39s Building Society makes this charge for loans above 75 per cent of valuation.

This means that a borrower with a 90 per cent mortgage on property worth £100,000 would pay a MIG premium of £1,050 with Teacher&#39s Building Society, but none with Portman Building Society.

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