|
There are different types of mortgages available to suit any financial requirement. Some of the popular mortgage options are –
Flexible mortgages
This type of mortgage gives you the leverage to change your mortgage payments to suit your ability to pay. Opting for a flexible mortgage is extremely worthwhile if you want to pay off your loan quickly.
Lot of flexible mortgages give you the overpayment option whereby you can payoff more than the normal monthly mortgage payment and payoff bigger parts of the loan. If you make overpayments, it can lead to two things -
|
- You stand to benefit from lower monthly interest payments as the money you owe is now less or
| - You could continue paying the higher amount and repay your loan faster. If you overpay regularly, you can repay your loan years before the term actually expires.
|
You can derive the maximum benefits of overpayments by choosing a mortgage where the interest on what you owe is calculated on a monthly or preferably on daily basis. Genuine flexible mortgages do not penalise you for overpaying however with some types such as fixed rate mortgages, you may have to pay an early repayment charge.
Offset Mortgage
In this type of mortgage, your main bank account and or savings accounts are linked to your mortgage. Each month, the amount you owe on your mortgage is reduced by the amount you have in these accounts. The balance you maintain in these accounts is taken into consideration before the interest due is calculated each month. So in effect, as your current account and savings balances go up, you pay less on your mortgage. If the balance goes down, you pay more. This type of mortgage is also tax-efficient as your savings are earning interest on the mortgage rate and there's no tax payable on savings.
Current account mortgages
Similar to an offset mortgage, the money you have in your account offsets the balance of your 'savings' against your mortgage. In this case however, your mortgage and current account are not different but combined into one single account. The lender will have a plan, which will state the minimum amount of money that needs to be there in your account each month in order to make your mortgage repayment over the agreed term. If you leave more than this in your account, you will pay less interest and may pay your mortgage off early but if you leave less in your account, each month, you will end up paying more for your mortgage.
Capped mortgages
In this type of mortgage the payable rate is restricted with a limit on the interest rate you pay over an agreed period of time. A capped rate mortgage protects the borrower from unexpected interest rate rise to a certain extent, while if interest rate stay low the borrower will benefit from the lower interest rates. A capped rate mortgage is a type of mortgage that puts the most attractive features of a fixed rate mortgage and a variable rate mortgage. Capped rate mortgages usually last for a few years. There are schemes whereby the capped rate mortgages last up to the entire term of the loan. To keep with market competition, many lenders have come out with capped rate mortgages with introductory discount periods.
Discounted Mortgages
A discounted mortgage is where in you pay an amount set below the lender's standard variable rate for a specified period of time. The discount is fixed is impervious to the changes in the standard variable rate in the market. A borrower can get discount mortgage from a short period such as six months to as long as up to five years. A discount mortgage is ideal for people who need to keep their initial repayments low so as to accommodate other financial needs such as financing cars.
| 
