There are many different mortgage options available in today’s marketplace. Below outlines a few examples that you will typically come across:
• Cash Back Mortgages
• Flexible Mortgages
• Offset Mortgages / Current Account Mortgages
Cash Back Mortgage
The lender will pay you a specific sum, 5% of the amount you borrow for example. This is issued after the loan has been agreed by both parties. If then, within a certain period of time (ask the lender for further details on what period) you decide to change your mortgage deal or move to a different mortgage lender, you will then have to repay a percentage or all of the cash back that was given to you initially.
A cash back mortgage may suit you personally if, for example you need some start-up finances to help fund things such as furniture, appliances etc. Some people also take the view that the cash received will help compensate for any interest rate rises that could occur during the specific period.
Those that do not require initial funding for their home are probably more than likely to opt for a different mortgage package.
Flexible Mortgage
Flexible mortgages give you an idea of what kind of changes there could be to your monthly repayments. These types of mortgages can also be useful if you would like to pay off your overall loan quicker. Below outlines some of the options of a flexible mortgage:
• Overpayments: This means that you can pay more, additional money on top of you usual monthly repayments. It also gives the chance to pay off a lump sum.
• Underpayments: This is where you would pay less than the normal, required monthly payment for a certain period. This is also known as ‘Payment Holidays’ and could be used if you are met with circumstances, which mean you are unable to pay the required monthly payments.
• Borrow Additional Money: This gives you the ability to borrow additional funds without being required to undertake further credit checks, references etc. You could also borrow back against earlier overpayments (if applicable).
If any of the above options are some, which you think may be suitable to you and your individual situation then a flexible mortgage may be a good option.
However, if you feel that you are not likely to use any of these options and you are confident of maintaining a steady income, it may be that you will find a better type of mortgage to suit.
Offset Mortgage / Current Account Mortgage
An offset mortgage means that your main bank account is linked to your actual mortgage loan. They are both, in most cases, held with the mortgage lender. Therefore, on a monthly basis, the amount you owe on your mortgage is reduced by the amount in your bank account. Interest is then calculated. In effect, as your current account balance increases, less payment is made on your mortgage and as the balance decreases, more payment is made on the mortgage loan itself.
Like with an offset mortgage, a current account mortgage offsets the balance of your current account against your mortgage loan. The difference being that rather than your mortgage and current account being separate bits of finance, they are instead combined into one account.
If you are a higher rate taxpayer and have a good amount of savings to offset then an offset / current account mortgage may suit your individual circumstances. You will also have the ability to make overpayments and underpayments.
However, if you do not have a good amount of savings, it may be better to find a mortgage with a lower interest rate where other options maybe available to you.
