The 0% mortgage explained
Leeds building society has launched what is thought to be the first ever mortgage in the UK which charges 0% interest in the first months, meaning a potential initial saving of up to £4,000.
July 18, 2013 | post last updated on August 18th, 2016
The Welcome mortgage allows homeowners to opt for either three or six months interest-free. This saving is then factored into later payments, so the final amount paid will be the same. But the initial payments will be much lower than with other deals.
Not paying interest for the six months frees up cash for other costs, such as stamp duty, legal fees or furnishing and decorating your house.
Leeds Building Society offers two versions of the deal: a three- or a five-year fixed rate, with the option of paying no interest for the first three or six months. After that the three-year fix starts at 3.79% and the five-year at 4.23%. You will eventually have to pay back the the capital for those three to six months but the interest is not added on later.
So, under the deal, if you had a £300,000 mortgage with a 90% loan-to-value (LTV) five-year fixed rate and the first six months interest free, the first payment would be £1,000. Whereas, if you opted for the standard Leeds 90% five-year fixed rate mortgage, the initial payment would be £1,715.
David Hollingworth from London & Country, who has also blogged for HomeOwners Alliance, told the Guardian newspaper that there are cheaper offers on the market, such as Accord Mortgages, which offer a five-year fix at 3.19% on 80% of the property’s value.