Other
Mortgage Variations
Cash-back Mortgage
With cash-back mortgage a lump cash sum is paid to the mortgage
holder once the mortgage has been fully repaid. The lump sum will
be a percentage (between 1% and 12%) agreed between lender and borrower.
This type of mortgage is a variation on other schemes and can be
used alongside an interest only mortgage for instance.
With cash-back mortgages you may have to pay application fees and
an early redemption penalty charge. Usually the lender will require
a non-refundable booking fee in advance.
Flexible Mortgage
With a flexible mortgage you can make both underpayments and overpayments,
according to your financial situation. For instance if you receive
a bonus at work you could use it to pay your mortgage off quicker,
and if you are short of funds you could take a payment holiday or
even borrow money back; although different lenders have different
policies on this. By paying your mortgage off early you could stand
to save a lot of money in interest repayments. It is advisable not
to make too many underpayments however, because you will find yourself
paying a large amount of interest. Usually this type of interest
rate is calculated daily meaning that you will see an immediate
impact of any overpayments that you make.
Different lenders have different rules on over and under payments.
For instance some lenders may not allow you to underpay if you haven't
overpaid in the past. Some lenders impose restrictions on the amount
you can over and underpay.
This type of mortgage may be most suitable for self-employed, company
directors of limited companies an contract workers.
Current account mortgage
A current account mortgage (CAM) combines the flexible mortgage
with a current account. In other words you combine what you owe
with what you own. In the same way as a bank account your income
is paid into your current account and partially used to repay your
mortgage. Your lender will set a maximum borrowing limit, much like
an overdraft, and provide you with a chequebook. The lender calculates
the mortgage interest rate on a daily basis meaning as long as you
keep up payments your interest rate should continue to fall. After
all income and expenditure is calculated, at the end of the month,
what is left will contribute towards paying off your mortgage.
As with most flexible mortgages most lenders will allow you to
make over payments, underpayments and take payment holidays. For
this service, and for a slightly greater than average risk to the
lender, most lenders will charge a slightly higher interest rate.
Current account mortgages give you the ability to shorten the life
of your mortgage term and therefore save considerable money by paying
less interest. If you earn regular bonuses and/or commission pay
you will be able to overpay when possible if you have the discipline
to do so.
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