Mortgage Advice Services understand there are so many mortgage deals on the market, it can be difficult to know which one would best suit your needs. To help demystify this big decision, we have written no-nonsense articles about various mortgage types and features. In this article we explore examples of important special features for mortgages in the UK.
With this type of special feature for your mortgage, your lender gives you cashback when you complete your mortgage. Having an upfront lump sum can be a good idea for people who need some money right away. However, they often carry a higher interest rate than other mortgages. Mortgage Advice Services recommends comparing the overall cost of the mortgage with other mortgage deals.
This mortgage type links your savings to your mortgage. Your savings are subtracted from the mortgage amount you pay interest on. For example, if you have £30,000 in a savings account which is linked to an offset mortgage of £300,000, you only pay interest on £270,000. This can be a good option if you have a lot of savings. However, Which? warns that you won’t usually earn interest on any savings held in a linked account, so, if you have a lot of savings Mortgage Advice Services recommends you investigate current available rates on high interest saving accounts to see if this would be a better option for your money.
Current Account Mortgages
This option is similar to offset mortgages, but your current account is linked to your mortgage instead of your savings account. This gives you one combined balance to pay. For example, if you have £5000 in your current account and you have a £190,000 mortgage, you are £185,000 overdrawn. When your wages go into your account, the debt reduces, and the interest being charged will decrease. As you spend money on bills, food and so forth throughout the month, your mortgage balance and interest charges gradually increase again. So, the interest being charged changes depending on the amount of money you have in your current account. You pay an agreed monthly repayment over the term, and any additional money in your account is like an “overpayment fund”. This means, if you are financially able, you could pay your mortgage off a lot quicker than with a standard type of mortgage.
Some Flexible Features for Mortgages
- Overpayments: last year Which? reported nearly half (46%) of UK homeowners made overpayments, so this is clearly a popular option. If you choose a mortgage that allows you to pay more than your usual monthly payment, you can lower your debt quicker. However, be sure to discuss and verify the terms of the mortgage agreement to be aware of any early repayment charges. You should also be aware that many lenders limit the amount you can overpay in any one year before incurring penalties.
- Underpayments: you may need to have previously made overpayments before you can make underpayments using your “overpayment reserve.” The Money Advice Service describe that whilst this can be useful if you experience a couple of months where money is a little tight, it will mean that you’ll pay more interest over the loan term and it will take longer to be debt free. Discuss this with your mortgage lender as you should not underpay unless you have their permission
- Mortgage payment holiday: you may want the option to temporarily stop or reduce your monthly payments. The Money Advice Service explain this option can relieve some pressure if you face a temporary drop in income, such as covering a maternity leave period. However, be mindful that after your holiday, your outstanding mortgage balance and payments will be higher than before the holiday
If you are looking to remortgage your property and are unsure of which deal to opt for, drop us a line on email@example.com today or call us on 0332 257 087 for expert, friendly, impartial advice tailored to your individual financial circumstances. With Mortgage Advice Services, you’re in safe hands.