How to get the best deal

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The Independent Online
YOU'VE NEVER had it so good. To millions of UK mortgage borrowers, Harold Macmillan's famous assessment, first made in the Fifties, could ring equally true today.

Not only are variable mortgage rates, ranging between 6 and 6.95 per cent, at their lowest point for more than 30 years, the variety of home loans is greater than ever before. It is increasingly unnecessary for any borrower to opt for a traditional 25-year loan, involving regular monthly payments. It is now possible to choose from a bewildering range of up to 4,000 home loan options, including capped, discounted and fixed mortgages - or hybrid products that offer a mixture of the benefits of each.

Among the available deals is a fixed mortgage from Bristol & West, pegged at 3.94 per cent for a year and thereafter variable. Hanley Economic Building Society is offering a "capped" deal, whereby rates are guaranteed not to rise above 4.95 per cent until February 2002. But if rates should fall, so will this mortgage.

Perhaps the most significant change to the mortgage market in the past 18 months is the growing popularity of"flexible" mortgages. These are loans where it is possible to over-pay by as much as you want and borrow back what you have paid in, whenever you need it. Everyone, from Alliance & Leicester to Saffron Walden Building Society, has now got into the act.

Many flexible mortgage lenders have coupled their loans with a new way of calculating the interest owed. Instead of crediting payments to a mortgage account once a year, they do so on a daily basis.

The effect can be substantial: both Halifax and Yorkshire Bank both charge a variable rate of 6.95 per cent on their loans. But Yorkshire's daily interest calculation means that a 25-year mortgage would be paid off nine months earlier than Halifax's, saving thousands in interest payments.

A handful of lenders take this flexibility to its ultimate conclusion. First Active, Virgin Direct and Kleinwort Benson offer "bank account mortgages", where all financial transactions take place within the loan account itself.

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