When the press release detailing the latest mortgage products from Leeds Building Society landed in my inbox today, it instantly grabbed my attention when I saw that the home loans were being offered with a 0% initial rate.
I was immediately suspicious and thinking this was just another gimmick that would end up hitting the customer in the pocket, however I’m happy to confess that my initial suspicions were unfounded.
So what’s the 0% interest all about?
You can take out a new ‘Welcome’ mortgage with Leeds Building Society for either a 3 or 5 year term with option of an interest free period for the first 3 or 6 months.
This means that during the initial 3 or 6 month interest free period your monthly repayments are much lower (as you are just making capital repayments) – thus giving you some extra breathing space in your budget at a time when it could come in very handy.
I’m sure you’re thinking the same as I was originally that there’s bound to be a catch, but I can assure you there isn’t.
Leeds Building Society offers standard fixed rate mortgages at 80%, 85% and 90% loan to value (LTV), and even if you opt for the 0% interest option, the amount you repay in interest is virtually the same as it is with the standard mortgage.
So how does it work in practical terms?
For example if you took out a standard 3 year fixed rate mortgage of £150,000 at 80% LTV the interest rate would be 3.45% your monthly repayments £746.27 and the total interest payable over the 3 year term is £10,327.
If you took the ‘Welcome’ version of the same mortgage, your repayments for the first 3 months would be £500 (£246 less) and for the remaining 33 months they would be £770.73 (£24 more) per month but the total interest payable is just £1 more at £10,328.
While some people will stick to a standard mortgage product I’m sure others will see the attraction of making lower repayments over the first 3 or 6 months. It’s not going to cost them any more by doing so, plus it gives them a bit more cash in their bank account and some flexibility to help cover some of the additional expenses you always face when purchasing a home.
The interest rates on these Leeds B S mortgages are not the absolute cheapest so you could get a cheaper deal over 3 or 5 years, but they’re not far off.
These mortgages are available for purchase only (not remortgages), they allow 10% capital repayments each year without penalty and come with a free standard valuation up to £335. There is an application fee payable of £199.
It’s good to see innovation in the mortgage market and a loan which is designed to offer flexibility to borrowers without any hidden catches or additional costs. Whilst it won’t appeal to everybody, there is definitely a place for this product and I think it is a HIT.