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The Different Styles
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| You Are Here: Home > Personal Finance > Mortgages > Different styles of Mortgages : Page 1 of 5 |
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Different Mortgage Styles
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Summary:
There are many different styles of mortgages available, this guide looks at the advantages and disadvantages of each type including 100%, Tracker, Capped and Cash Back Mortgages. |
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Flexible Mortgages
As the financial services industry became more flexible in the 1990s many new styles of mortgages were introduced, including the Flexible Mortgage.
This type of mortgage offers a flexible way to manage the loan. For example, you can pay in lump sums, increase or decrease the monthly payments, and even take the occasional payment holiday where no monthly payment is made.
There are three types of Flexible Mortgages available -
- Offset Mortgages
- Current Account mortgages, and
- Conventional flexible mortgages
Offset Mortgages
Offset mortgages allow you to keep a number of credit and debit accounts with the same lender, for example a savings and a personal loan account as well as the mortgage.
- Every month your total assets and liabilities are added up across the different accounts with one monthly charge payable
- Savings accounts obviously reduce the amount of the overall debit and therefore reduce the monthly payments while Personal loans and credit card balances increase the loan
- The good news about Offset mortgages is that interest is charged at the mortgage rate on all debts including credit card debit balances
How Much Can You Save With An Offset Mortgage
The following tables shows how much money can be saved with an Offset mortgage, assuming that you have plenty of savings.
- The tables are based on a simple repayment mortgage over 25 years with interest rates and/or current account balance remaining unchanged
- For example, one of the boxes is highlighted below which assumes a £100,000 mortgage with £10,000 in savings
- Not only would this financial scenario save £18,362 in interest over the 25 year period but the mortgage would also be paid off 2 years and 8 months early
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OUTSTANDING
MORTGAGE
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AVERAGE SAVINGS & CURRENT ACCOUNT BALANCE
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£1,000
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£2,500
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£5,000
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£10,000
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£50,000
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£2,063
7 mths
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£4,930
1 yr 5 mths
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£9,184
2 yrs 8 mths
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£16,086
4 yr 8 mths
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£75,000
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£2,083
4 mths
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£5,054
11 mths
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£9,625
1 yr 10 mths
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£17,548
3 yrs 5 mths
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£100,000
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£2,091
3 mths
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£5,115
9 mths
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£9,858
1 yr 5 mths
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£18,362
2 yrs 8 mths
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£125,000
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£2,100
2 mths
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£5,153
7 mths
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£10,005
1 yr 2 mths
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£18,886
2 yrs 2 mths
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£150,000
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£2,105
2 mths
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£5,182
6 mths
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£10,106
11 mths
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£19,249
1 yr 10 mths
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£200,000
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£2,110
1 mths
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£5,215
4 mths
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£10,232
9 mths
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£19,719
1 yr 5 mths
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OUTSTANDING
MORTGAGE
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AVERAGE SAVINGS & CURRENT ACCOUNT BALANCE
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£15,000
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£20,000
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£35,000
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£50,000
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£50,000
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£21,338
6 yrs 3 mths
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£25,341
7 yrs 5 mths
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£32,191
9 yrs 5 mths
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£34,014
9 yrs 11 mths
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£75,000
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£24,123
4 yrs 8 mths
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£29,604
5 yrs 9 mths
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£41,156
8 yrs 1 mths
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£47,553
9 yrs 3 mths
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£100,000
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£25,737
3 yrs 9 mths
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£32,157
4 yrs 8 mths
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£46,920
6 yrs 9 mths
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£56,67
8 yrs 4 mths
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£125,000
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£26,797
3 yrs 1 mths
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£33,864
3 yrs 11 mths
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£50,959
6 yrs
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£63,294
7 yrs 5 mths
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£150,000
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£27,545
2 yrs 8 mths
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£35,089
3 yrs 5 mths
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£53,955
5 yrs 3 mths
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£68,328
6 yrs 8 mths
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£200,000
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£28,529
2 yrs 1 mths
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£36,724
2 yrs 8 mths
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£58,106
4 yrs 3 mths
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£75,498
5 yrs 6 mths
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Current Account Mortgages
With this type of mortgage plan both your current account and mortgage account are combined. Because interest is charged daily on this plan your monthly wages will create cashflow hence reducing the overall interest bill.
All accounts are kept separate (mortgage, savings, current account) but the balances are combined on a daily basis to give one overall balance.
Conventional Flexible Mortgages
A Conventional Flexible Mortgage is really a tailor-made product differing from Lender to Lender. As its name suggests it tries to offer the most flexible plan available including some of these features;
- Flexible payment facility - choose to pay weekly, fortnightly or monthly
- Payment holidays - Stop paying your commitments for a set period of time
- Lump sum payment facility - Perhaps a relative dies leaving you a nice sum of money, with a lump sum facility you can pay all or part of the loan off without incurring charges or penalties
- Overpayment facilities - Increase your monthly repayments and pay off the loan early
- Underpayment facilities - Reduce your monthly repayments for a set period of time
- Lump sum withdrawals - You can use this to increase the mortgage. For example if the original loan was £100,000 and over 5 years you'd paid off £20,000 of the principal, you could then use this facility to increase the mortgage back up to £100,000 by taking out a cash lump sum
- Daily interest calculations - Interest on the outstanding loan balance is calculated daily therefore any payments you make are taken into account straight away
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