Spotlight/The John Charcoal redemption Penalty Free Mortgage

THE PRODUCT: John Charcol's redemption-free fixed-rate mortgages.

The deal: take out a mortgage of anything up to 95 per cent of the value of the mortgaged property. Fix the rate at 6.39 per cent for two years, or 6.99 per cent for five years. Redeem the mortgage any time without any penalty. Alternatively, buy a five-year fix at 6.35 per cent. Pay a penalty to redeem in that five-year period.

Plus points: redemption penalties can have a bigger impact than you might think. Many borrowers took out five-year fixes in 1993 at less than 6.5 per cent; after rates of more than 12 per cent in the early 1990s, they thought they had a good deal. The trouble lay in a "trailer redemption penalty": when the fix ended, they were locked into variable rates of 8.7 per cent or more. And interest rates are still going up.

Drawbacks and risks: the flexibility in the products comes at a price. Two-year fixed rates are available from as little as 4.64 per cent or 4.45 per cent - though borrowers can only go up to 75 per cent of the value of their home. Verdict: top-notch for borrowers who don't mind paying for peace of mind.

Marks out of five: four.

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