Some mortgages come with special features which could help your cash flow or pay off your mortgage quicker.
Cashback mortgages
With a cashback mortgage, you’re given some cash when you take out your mortgage.
The cashback sum might be a proportion of the amount you’re borrowing (for example 1%) or might be a fixed amount (for example £500).
You receive the cashback on completion, not before.
Mortgage repayment calculator
Work out different monthly repayment mortgage using our mortgage repayment calculator.
Pros
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- Having a lump sum to help with, for example, the costs of furniture and repairs to a new home.
Cons
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- Cashback mortgages often charge a higher interest rate than other mortgages. To check the true cost of cashback, compare your mortgage costs with other products in the market.
Offset mortgages
With an offset mortgage, your savings are linked to your mortgage.
This means that your savings go towards reducing your mortgage, so you only pay interest on the mortgage amount, minus the amount you've saved.
It’s a good choice for people with savings and a reasonable bank balance every month.
Offset mortgages can be on fixed or variable rates.
Offset mortgage example
You have a £200,000 offset mortgage at 3% interest. You also have £10,000 savings in an offset account.
The £10,000 is subtracted from the £200,000, so you only pay interest on the balance of £190,000.
So rather than earning interest separately on the £10,000 as savings, you would instead avoid paying 3% interest on £10,000 of your debt.
See how much money you could save through offsettingOpens in a new window by using the calculator on the 'This Is Money' website.
Pros
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You still repay your mortgage every month as usual, and pay it off quicker because you reduce the amount owed.
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You can still make withdrawals on your savings when you want.
Cons
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Not ideal for those relying on their savings interest to boost their income.
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Offset mortgages don’t typically offer you access to discounted rate deals.
Current account mortgages
Current account mortgages are a type of offset mortgage.
The only difference is that your current account and mortgage are merged into one.
So, if you have a mortgage of £150,000 and £1,500 in your current account, your statement will show that you owe your lender £148,500.
A current account mortgage example
Current account mortgages are similar to an offset mortgage.
The difference is that your current account, rather than your savings and mortgage, are merged into one.
For example, if you have a current account mortgage of £150,000 and £1,500 in your current account, your statement will show that you owe your lender £148,500.
For example, imagine your take home pay is £3,000 a month, and have a mortgage of £148,000.
While your £3,000 is in the account, you’ll only be charged interest on £145,000.
As you go through the month and spend some of your pay, your mortgage balance gradually rises and the daily interest charges will increase.
When you get your next pay packet into your bank account, your mortgage balance will once again be slightly reduced and the interest being charged will fall.
So with a current account mortgage, the interest charged fluctuates in line with the rise and fall of the amount in your current account.
If you have a repayment mortgage you’ll pay off more capital whenever your current account is in credit.
Pros
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You have the flexibility of using money in your current account to reduce your monthly payments.
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You’re more likely to be paying off your mortgage quicker than with a standard type of mortgage.
Cons
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These types of mortgages don’t typically offer you access to discounted rate deals.
Other mortgages with flexible features
Some conventional mortgages offer flexible features, listed below:
The option to overpay
Many mortgages allow you to pay more than your normal monthly payment so you can reduce your debt quicker.
Check if there’s a limit on how much you can overpay each year – it’s often 10% of the mortgage.
Paying back your mortgage before the end of its term might seem like a great idea, but you need to be aware that you might be charged an early repayment fee, so it’s wise to check the terms of your mortgage agreement.
The option to take payment holidays
With some mortgages – and depending on your financial circumstances – you might be allowed to take a payment holiday.
This means you don’t have to make any payments for a limited period. Not all mortgages have this option.
Read more in A guide to mortgage payment holidays
Underpaying
If you've overpaid in the past, a lender might consider allowing you to pay less than your normal monthly repayment. For example, if you experience a change in your financial circumstances and are struggling to meet your mortgage commitments.
This can be useful when money is tight, but it does increase your debt as the difference is added to your mortgage.
It will take you longer to pay off your outstanding mortgage and you’ll pay more interest over the course of the loan.
Comparison websites for mortgages
Comparison websites are a good starting point for anyone trying to find a mortgage tailored to their needs.
Popular websites for comparing mortgages include:
Remember:
- Comparison websites won’t all give you the same results, so make sure you use more than one site before making a decision.
- It is also important to do some research into the type of product and features you need before making a purchase or changing supplier.
