Alternative Mortgages to Consider
Flexible and current account/offset mortgages
A mortgage is an important, sometimes daunting and normally long-term financial commitment for most people, but is also necessary if you want to get onto the property ladder and eventually own your own home. Once you’ve found a home, either through an estate agent or online through property finding sites like fish4, the most important thing to do is to get an agreement in principle from a mortgage lender.
There are a wide variety of mortgages and add-ons that offer a range of services way and beyond the traditional Fixed and Variable rate mortgages that have proven the basis of mortgage lending over the last few years. Among the many options you may end up discussing with a professional mortgages advisor – NatWest for example offer flexible, current account, offset and buy to let.
Flexible mortgages
Flexible mortgages allow you to adjust repayments to suit your situation. If some months you feel you’d like to pay a little extra, you can. Borrowers can also decide to make smaller monthly payments or even take a break completely for a period; however, you will normally have to build up a reserve through overpayments before being allowed to underpay or skip payments.
Most flexible mortgages charge interest on a daily or monthly rate. Any over-payment reduces the mortgage balance immediately, and the borrower will be charged less interest from the next day. Over-paying the mortgage on a monthly or regular basis, even by a relatively small amount, will reduce your mortgage term by years and save money.
Early Repayment Charges are excluded from many flexible mortgages so the borrower is not ‘locked-in’ to any particular lender. In addition the interest rate charged is often lower than the usual Standard Variable Rates charged by the other more ‘traditional’ mortgage schemes.
Imported from Australia you may occasionally hear flexible mortgages referred to as ‘Aussie style mortgages’.
Current account/offset mortgages
Current account mortgages combine your current account with your mortgage - so in effect you have a very large overdraft. The advantage is that when your interest is calculated on the sum you borrowed, the funds you have in your current account are taken off the loan.
With offset mortgages you have separate accounts but again the funds you have in savings or current accounts are taken into consideration when you interest is calculated. Some providers can also factor in credit cards and loans under the same interest rate too and while the standard variable rate may be slightly higher than other mortgage providers’ rates, the rate will be much lower than that of most loans.
For example - if you borrow £100,000 and you have £3,000 in your current account you’ll only be charged interest on £97,000.
Your savings remain accessible, however when cash is withdrawn, so the amount on which interest is payable will increase. This can result in savings earning significantly higher rates of interest than if left in a traditional savings account
They tend to be very flexible, allowing lump sum overpayments to be made or additional borrowing against overpayments. This can make this type of product ideal for the self-employed or those with unpredictable levels of income and if you generally have a healthy amount of credit in your other accounts.
Take a look at Alliance and Leicester’s mortgage calculator to work out exactly how much you can afford. They also provide some of the most competitive mortgage rates in the market.
