In addition to the different interest rate deals available, mortgages can have different features built in. It is important you are aware what each feature offers as they can help ensure you get a mortgage that best suits you.
Note; The features of a mortgage product are explained in detail in the Keyfacts about this mortgage document, also known as a Keyfacts illustration or KFI.
Cashback mortgages offer you a large lump sum payment (for example, 3% – 5% of the amount you borrow) shortly after you take out the loan. This can come in handy for any large purchases you want to make or to compensate for any higher interest rate you may have to pay during the early repayment charge period. However, if you switch lenders in the first few years, you will be required to repay some (or all) of the cashback that you received from your mortgage lender.
A flexible mortgage gives you the ability to change your monthly payments to suit you. For example, it gives you the freedom to make overpayments, underpayments or take payment holidays (i.e. pay more or less than your monthly mortgage payment or stop making payments altogether for a limited period). It’s also useful if you want to pay off your loan more quickly or borrow extra money (loan drawdown).
These flexible features are becoming common, with many lenders now offering them as standard with their regular mortgage products.
An offset mortgage links your mortgage to a current account or savings account (or both) that is usually held with the mortgage lender, although this is not always the case. The amount you owe on your mortgage is reduced each month by the amount in these accounts before working out the interest due on the loan.
The money in your current or savings accounts (or both) is used to offset the amount you need to repay on your mortgage before working out the interest due on the loan. Therefore if you increase your current and savings account balances, your mortgage payments will be lower. However, if the balances drop, your monthly payment will rise.
Current account mortgage
This works in the same way as an offset mortgage in that it uses the balance of your savings to repay your mortgage. The difference with a current account mortgage, however, is that your mortgage and current account are usually combined into one account, which acts like one large overdraft.
Both offset and current account mortgages are only ideal for higher-rate taxpayers who have substantial savings to offset.