Spotlight: The Independent Mortgage Collection's capped rate mortgage

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The Independent Online
The Product: The Independent (not this paper) Mortgage Collection's capped-rate mortgage.

The Deal: Take a loan worth up to 95 per cent of the value of a new house. Over the next four years, borrowers will pay no more than 6.75 per cent in interest. If rates fall, homeowners pay less.

Plus points: Borrowers have flocked recently to fixed-rate mortgages which guarantee a rate of interest for the next two years or more. Over the last year, interest on five-year fixed-rate mortgages (usually between 6.5 and 8 per cent) has been lower than variable rates (between 8 and 9 per cent).

But many experts believe interest rates will come down in the next five years to 6 per cent or less. The mortgage is funded by Bradford & Bingley, which in the last year has offered variable interest rates substantially lower than most lenders.

Although not as keen as Leeds & Holbeck's 6.49 per cent five-year capped offer, no compulsory insurance - which usually adds at least 0.3 per cent to a loan - is required.

Drawbacks and risks: If you believe interest rates will go up and stay up, a fixed-rate product is a better bet.

There is a redemption charge of 3.5 per cent in the first four years - roughly equal to six months' repayments. But this is better than other capped-rate mortgages, where borrowers must wait longer than the capped- rate lasts. There is an application fee of pounds 295 which can be added to the loan. Bradford & Bingley also charges mortgage indemnity guarantees (MIGs) starting at 75 per cent of a loan-to-value. On a pounds 100,000 loan, a 90 per cent MIG would cost pounds 750.

Verdict: A reasonably priced way to hedge against the bad times but not miss out on the good.

Marks out of five: Three