0% Mortgages: Too Good To Be True?
There are now mortgages in the marketplace that have 0% interest for a set period of time. Yes, that’s right – 0% interest!
So, are 0% mortgages really too good to be true? Let’s have a look at the figures.
At the time of writing, the Yorkshire Bank offers a 0% fixed rate mortgage for 6 months. After the set period, it reverts to 6.65% and you are tied in to the provider until April 2012.
Over five years, you’ll be paying a total cost of £37,114.18 (based on borrowing £100,000 on a 25 year mortgage term).
Now look at a deal offered by someone else – say Market Harborough BS, who currently offer a fixed rate deal of 2.10% reverting to 6.8% after two years. Over five years, you’ll be paying a total cost of £34,964.88 for the same amount of borrowing.
So, with the latter, you will be paying less overall with a 2.10% mortgage compared the 0% mortgage.
The golden rule here is, when choosing a mortgage, by all means consider one with 0% interest. Certainly, the Yorkshire Bank 0% mortgage allows you to reduce the capital by a maximum of 10% of the outstanding balance p.a. so this could be a way of reducing your overall costs.
Make sure that you do your calculations first to ensure that you really are paying as little as possible for your mortgage.