Offset Mortgages

New Types Of Mortgage - part 1

Recently, there have been some new types of mortgages available which give you more options as to how you pay back the money you owe.

These new mortgages are: flexible, current account and offset mortgages. So how do they work?

Flexible mortgages

Basically, a flexible mortgage allows under and overpayments. Most will normally allow you to pay around 10% a year more than necessary. So, you can pay your mortgage off earlier. Or, you can take back some of the money that you have overpaid if you need to by taking a \'payment holiday\'.

Terms vary from lender to lender as to getting back overpayments, so do check with a prospective lender as to how their product works.

Current account mortgages and offset mortgages work on the principle that you can pay less in interest by combining various aspects of your finances. As we all know, typically we get less interest on our savings than they we pay for our debts. These mortgages try and turn this around a bit.

Current account mortgages

Current account mortgages are basically one very large overdraft. How it works is that all your debts are combined with all your income in to one account.

So when you get your salary paid in, the amount of debt you have is reduced, so you pay less in interest. Of course, when you take money out, then your ‘overdraft’ increases and you pay more in interest.

However, it is a way of over or underpaying into a mortgage without any financial penalty.

As with a normal mortgage, you have to repay the debt by a set time. This can be done by gradually reducing your borrowings to zero (just like you would with a repayment mortgage).

Or, similar to an interest-only mortgage, you can use a separate investment such as an ISA to repay your capital at the appropriate time.

Do bear in mind that the rates on current account mortgages can to be slightly higher than the deals you can get for fixed rate or discounted mortgages. Therefore it makes sense to do your sums to ensure that a current account mortgage would be right for you.

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