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| Leeds building society launches 'zero interest' mortgage deal | Leeds building society launches 'zero interest' mortgage deal |
| (30 days later) | |
| Leeds building society has launched a mortgage with a "zero" interest rate for the first six months. | Leeds building society has launched a mortgage with a "zero" interest rate for the first six months. |
| The deal, thought to be the first of its kind in the UK, would cut a borrower's monthly payments by hundreds of pounds during the first few months, freeing up cash for home improvements, furniture or other spending, the lender said. | The deal, thought to be the first of its kind in the UK, would cut a borrower's monthly payments by hundreds of pounds during the first few months, freeing up cash for home improvements, furniture or other spending, the lender said. |
| The deal is available on a three- or five-year fix and gives customers the option of paying no interest for the first three or six months. | The deal is available on a three- or five-year fix and gives customers the option of paying no interest for the first three or six months. |
| The interest rate paid after that will depend on the chosen interest-free period and how long the borrower chooses to fix. The three-year fix starts at 3.79%, with three months at 0%, and the five-year fix at 4.23%. | The interest rate paid after that will depend on the chosen interest-free period and how long the borrower chooses to fix. The three-year fix starts at 3.79%, with three months at 0%, and the five-year fix at 4.23%. |
| During these months the customer will still have to pay off the capital, and the interest they do not pay at the beginning will be added into the later payments. But the initial payments will be considerably lower than if they had opted for a standard deal. | During these months the customer will still have to pay off the capital, and the interest they do not pay at the beginning will be added into the later payments. But the initial payments will be considerably lower than if they had opted for a standard deal. |
| For example, for someone borrowing £300,000 and opting for a five-year fix with a 0% interest period for six months, the initial monthly payment would be £1,000 compared with £1,715 on the standard version of the Leeds 90% five-year fixed-rate mortgage. In this example, the customer would have effectively saved a total of £4,293 over the six months, which they could use to carry out improvements, for example. But after six months the £1,000 payment would rise to £1,803. | For example, for someone borrowing £300,000 and opting for a five-year fix with a 0% interest period for six months, the initial monthly payment would be £1,000 compared with £1,715 on the standard version of the Leeds 90% five-year fixed-rate mortgage. In this example, the customer would have effectively saved a total of £4,293 over the six months, which they could use to carry out improvements, for example. But after six months the £1,000 payment would rise to £1,803. |
| The society said the total interest paid by a borrower over the term of the mortgage was broadly the same as the amount paid by someone who opted for one of its standard fixed-rate loans. | The society said the total interest paid by a borrower over the term of the mortgage was broadly the same as the amount paid by someone who opted for one of its standard fixed-rate loans. |
| Kim Rebecchi, the society's sales and marketing director, said: "These products offer excellent value and support borrowers in the early months in their new home. Depending on the size of the mortgage and the 0% period chosen, borrowers can initially reduce their outgoings by thousands of pounds, allowing them the flexibility to improve their property and manage their cashflow. | Kim Rebecchi, the society's sales and marketing director, said: "These products offer excellent value and support borrowers in the early months in their new home. Depending on the size of the mortgage and the 0% period chosen, borrowers can initially reduce their outgoings by thousands of pounds, allowing them the flexibility to improve their property and manage their cashflow. |
| "Furthermore, their monthly payment after the 0% period does not increase significantly compared to a standard fixed-rate product, avoiding a payment shock." | "Furthermore, their monthly payment after the 0% period does not increase significantly compared to a standard fixed-rate product, avoiding a payment shock." |
| A Leeds spokesman said its new deal, called the Welcome Mortgage, was nothing like the "deferred-interest mortgages" introduced in the 1980s that allowed part of the interest to be repaid at a later date, but which resulted in problems for many people. With the new loans, he said, "you are paying off capital and reducing your debt from month one". Furthermore, he added, borrowers have the certainty of fixed monthly payments. | A Leeds spokesman said its new deal, called the Welcome Mortgage, was nothing like the "deferred-interest mortgages" introduced in the 1980s that allowed part of the interest to be repaid at a later date, but which resulted in problems for many people. With the new loans, he said, "you are paying off capital and reducing your debt from month one". Furthermore, he added, borrowers have the certainty of fixed monthly payments. |
| Ray Boulger at broker John Charcol, one of Britain's leading mortgage experts, said that in contrast to some of the new product announcements by banks and building societies, "this is a genuine innovation. This is a really interesting deal." | Ray Boulger at broker John Charcol, one of Britain's leading mortgage experts, said that in contrast to some of the new product announcements by banks and building societies, "this is a genuine innovation. This is a really interesting deal." |
| Borrowers need to remember that this mortgage "is not interest-free", he added - they are being charged the interest but will pay it over the remaining term of the deal. | Borrowers need to remember that this mortgage "is not interest-free", he added - they are being charged the interest but will pay it over the remaining term of the deal. |
| Boulger said five-year fixed rates currently offered better value in general than three-year fixes, and added that he thought most people would go for the six months interest-free option. | Boulger said five-year fixed rates currently offered better value in general than three-year fixes, and added that he thought most people would go for the six months interest-free option. |
| Top mortgages | Top mortgages |
| HSBC | HSBC |
| HSBC | |
| HSBC | HSBC |
| Provided by London & Country for the Guardian | Provided by London & Country for the Guardian |