The Property Ladder New Types Of Mortgage

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. Offset mortgages An offset mortgage is different to the current account mortgage in that your current account, savings account, loans etc are kept in separate 'pots' from your mortgage. Then you can decide whether you wish to offset all or one of these accounts against your mortgage.

As an example, you could offset your current account and savings against your card debts and mortgage. You will then pay less in interest. Like the current account mortgage, using your savings to reduce your mortgage can be quite tax effective. So, are these mortgages for you? Current account, offset and flexible mortgages are ideal for people on a high earners or those who have reasonably substantial savings. You also need to be disciplined and not be tempted to have a payment holiday and blow the money on a trip somewhere exotic!.

More information : James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.

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