Instead of short-term discounts in the early years of the loan, or cashbacks to help pay for new carpets and curtains, the Loyalty Bonus Mortgage reduces the amount owing on the mortgage by 5 per cent after five years, and then on every fifth anniversary after that. This reduction would be jeopardised if the mortgage was in arrears. The loans are at variable rates on a repayment basis only, with the rate set initially at the average of the top five building societies' variable mortgage rates for existing customers. With interest rates at 7.75 per cent, a 20-year loan would be repaid in just over 18 years; if rates rose the loan would be repaid more quickly.
Borrowers can repay all or part of the loan without penalty. Those trying to clear debts as quickly as possible should make extra repayments just after the 5 per cent reduction has been made.
No insurance has to be taken out but there is a pounds 30 annual fee for checking other policies. Life cover of 105 per cent of the property valuation has to be taken out. The application fee is pounds 295, and borrowers must have a minimum deposit of 25 per cent.
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