Charcol launches federal reserve mortgage

Charcol has launched a federal reserve mortgage.

Its initial rate is 2.99% until June 30 2005 and it
then tracks US three months Libor, which is currently 2.50%, for 10 years.

Borrowing is in sterling so there is no currency risk.

After the initial period to June 30 2005 the interest rate on this mortgage will be US$ three month Libor, currently 2.50%, plus 1.15% until June 30 2015.

Based on the current Libor rate this would give a pay rate of 3.65% and the tracker rate will be re-set every three months.

Ray Boulger, senior technical manager of Charcol, says: “The key to evaluating this mortgage is the likely difference between short-term US and UK interest
rates over the 10 years of the deal.

“US$ three month Libor has been lower than its UK equivalent for all but 1 of the last 20 years and it is currently well over 2 % less – 2.50% v 4.86%.

“Although the current differential between US and UK rates is likely to reduce over time, this deal
nevertheless offers exceptional value for borrowers who want a variable rate mortgage and are prepared to accept early repayment charges for 10 years in
exchange for a exceptionally competitive rate.”

Interest on the mortgage is calculated on a daily basis and it is flexible.

Borrowers can repay up to 10% of the mortgage per annum without incurring an early repayment charge and any overpayments can be utilised to take up
to six months payment holidays per year if required.

Boulger adds: “In addition, such a low starting rate has the added benefit on a repayment mortgage that the amount of capital repaid in the early years will be significantly greater than normal.

“A bonus with this mortgage is that because the rate is so low borrowers will have the option of paying their mortgage back much quicker than usual, simply by paying each month what they would have paid on a normal mortgage.

“They can either set the mortgage up for a shorter term, use the 10% p.a. ERC free overpayment facility, or employ a combination of both.”