Sunday May 11, 03:02 PM
Get Airmiles With Your Mortgage
By Jane Baker
This article has already been sent to Fools as part of our 'The Good, The Bad and The Ugly' email series. You're probably familiar with reward credit cards. You may even have one yourself. But a reward mortgage is a pretty
new innovation. Continuing its partnership with Airmiles, Lloyds TSB has launched the new Airmiles Mortgage.
In a nutshell, the Airmiles Mortgage is a three-year fixed rate deal. Borrowers will receive 6,000 airmiles on completion, followed by a further 50 airmiles every month throughout the fixed rate period. That means you could earn around 7,800 airmiles over three years, which can be used for a range of rewards including flights, days out for the family and trips to the theatre.
What's more, you could earn an extra 100 airmiles if you buy buildings and contents insurance from Lloyds TSB too.
Airmiles have already proved to be a popular incentive with Lloyds TSB's many Airmiles Duo credit card holders, but will the Airmiles Mortgage enjoy an equally warm reception?
My guess is that it will, but not necessarily because of the rewards. True, most of us love a freebie, but I think it's the mortgage product itself which is the real clincher, with airmiles as an added bonus.
The deal offers decent rates and relatively low product fees. There's even an option to pay no product fee in return for a higher interest rate. That's good news for those of you with little spare cash.
The table below outlines what the Airmiles Mortgage has to offer you:
Interest Rate Maximum Loan-To-Value Product Fee Early Repayment Charge 5.89% 75% £995 Until 30.06.2011
3% in year 1 and 2, 2% in year 3 6.19% 75% £0 As above 6.19% 90% £995 As above 6.49% 90% £0 As above With the average interest rate on a three year fixed-rate mortgage coming in at around 6.5%, a rate of 5.89% looks pretty competitive. If you're borrowing say, £150,000 that would set you back £956.39 per month.
But you'll only qualify for that rate if you have a loan-to-value (LTV (LTVCQ.PK - news) ) of no more than 75%. The loan-to-value is your outstanding mortgage debt as percentage of the value of your home. In other words, you'll need a 25% deposit for a new home or a reasonable amount of equity if you're remortgaging your current property. Sadly, that could exclude scores of borrowers.
However, if you have 10% equity in your home or a 10% deposit, you can still apply for the Airmiles mortgage, but the rates will be higher. At 90% LTV, the rates are 6.19% or 6.49%, depending on whether you pay the product fee or not. These rates are a little less eye-catching, but nevertheless remain below the market average.
On the plus side, you can overpay the mortgage by up to 10% of the balance each year without incurring a charge within the three year introductory period.
I think Lloyds TSB has put together a pretty good mortgage deal, but it isn't the market-leader. Other large mortgage lenders offer better rates. Halifax, for example, has a three year fixed-rate deal at 5.77% which has a lower product fee of just £499 and is available at 90% LTV.
That said, at a time when most banks and building societies are reining in their lending, it's good to see one lender trying to win new business with an innovative and reasonably competitive product.
Many lenders are increasing rates, hiking up product fees and asking would-be borrowers for even greater deposits or LTVs. But the credit crunch hasn't affected all banks to the same extent, allowing lenders such as Lloyds TSB to take the opportunity to grab a greater market share. You may be able to benefit from that too.
If you're looking for a new mortgage speak to a broker at The Motley Fool's award winning mortgage service.
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