As well as different costs, mortgages can have different features. Make sure you know the different types so you find the right mortgage for you.
Some examples of different mortgage features are:
- cashback mortgages;
- flexible mortgages;
- offset mortgages; and
- current account mortgages.
Look at sections 4 and 12 of the about this mortgage which will explain the features of the mortgage.
This may be offered with an interest-rate deal. The lender pays you a substantial sum (for example 3-5% of the amount you borrow) shortly after you take up the loan. If you move to another lender in the early years you’ll have to repay some or all of the cashback received.
Is it right for you?
Possibly yes, if you need a large cash sum – for example, to buy furniture, or you expect the sum to more than compensate for any higher interest rate you may have to pay during the penalty period.
Possibly not, if you can manage without the cashback now and can get a better overall deal elsewhere.
A flexible mortgage gives you some scope to change your monthly payments to suit your ability to pay. It’s also useful if you want to pay off your loan more quickly. Several flexible features are becoming common and they aren’t limited to mortgages with ‘flexible’ in their name. Here are some flexible features:
- Overpayments – you can pay more than your normal monthly mortgage payment or pay off a lump sum, or both.
- Underpayments and payment holidays – you pay less than the normal monthly payment for a limited period (say six or twelve months). You may even be able to stop making payments altogether (a payment holiday). This could be useful if, say, you lose your job or take time off to care for a child.
- Borrow extra (loan drawdown) – you can borrow extra without further approval from your lender, provided the total loan does not go above an overall limit. Alternatively you may be able to ‘borrow back’ against earlier overpayments.
Is a flexible mortgage right for you?
Possibly, yes, if you are likely to use these features, for example if you’re self-employed and have a variable income.
Possibly not, if you are unlikely to use these features. A less flexible mortgage may be cheaper or more suitable for you.
With an offset mortgage, your main current account or savings account (or both) are linked to your mortgage and are usually, but not always, held with the mortgage lender. Each month, the amount you owe on your mortgage is reduced by the amount in these accounts before working out the interest due on the loan.
So as your current account and savings balances go up, you pay less on your mortgage. As they go down, you pay more.
Current account mortgage
A current account mortgage is similar to an offset mortgage in that it offsets the balance of your savings against your mortgage. However, in this case, rather than your mortgage and current account being separate pots of money, they are usually combined into one account. This means that the account acts like one big overdraft.
Look at Section 4 of the about this mortgage document to see whether it is a current account or offset mortgage and whether you have to take a current account offered by the lender as a condition of the mortgage.
Is an offset or current account mortgage right for you?
Possibly, yes, – if you are a higher rate taxpayer, have substantial savings to offset and like the idea of built-in flexibility to make overpayments and underpayments.
Possibly not, if after paying your deposit you don’t have much left in savings and if other mortgages have a lower interest rate or other features that are more important to you.
- Read the document and use it to compare costs and features of other mortgages available.
- Look for the APR figure alongside the interest rate. This will enable you to compare the overall cost and not just the interest rate.
- Use our Mortgage Search and Best Buys to help you compare costs and features of mortgages available.
- Don’t forget that discounts and special deals are temporary, and rates can go up when they end.