As well as a particular type and rate of interest, the mortgage may contain additional features. Their importance or otherwise will depend on an individual’s circumstances and preferences.

Flexible Mortgages

This type of mortgage will allow you to vary the monthly payments without penalty. Dependent on the selected lenders criteria this is likely to include:

• Overpayments - which will reduce the capital outstanding and therefore potentially the term of the mortgage, resulting in less interest paid over the term of the loan. Such overpayments can be regular or occasional lump sums.
• Underpayments – high expenses at a certain time of the year could be accounted for by making a reduced payment to your mortgage lender. This may require a surplus to have been built up beforehand by way of previous overpayments.
• Payment holidays – a significant expense such as a wedding or car purchase may be covered by taking a payment holiday for a period of months. Again, some lenders may require a surplus to have been built up beforehand. Others will allow for an extension of the term to allow you to catch up.

Mortgages offering maximum flexibility will normally come at an increased rate of interest to allow for the features on offer. Many people looking for flexibility are only interested in the potential for making overpayments if circumstances allow. If this is the case, many lenders will allow for a more limited overpayment facility on their standard mortgage products.

Current account and offset mortgages

These mortgages allow borrowers to combine their mortgage with their current account or savings account. Money that is held in such accounts, traditionally receiving a low rate of (taxed) interest, can be offset against the mortgage and therefore create a lower mortgage balance for as long as the money is there. The result is that the interest only part of your mortgage payment is reduced with more of your monthly payment used to repay capital. The net effect is again a potential reduction in the term of your mortgage and therefore a reduction in interest paid to the lender over the term of the loan.

Such mortgages can be particularly useful to the self-employed who save money on a regular basis only to clear such savings every 6 months as a tax bill becomes due. Whilst the build up of savings is in their account, the interest they pay on their mortgage will be reduced. 

Cashback mortgages

This type of mortgage will offer a lump sum which is paid to the borrower when the mortgage is taken out and could be used to cover purchase and moving costs, home furnishings or to clear debts and therefore help with the overall affordability of the monthly mortgage payment. However, such offers come at a price and will usually mean a higher rate of interest from the start, or an extended tie in at the SVR following the end of the initial product period. Additional care must be taken when looking at the conditions attached to such a mortgage.