Main mortgage types

Cons

• You may not want to make bigger or smaller payments each month. The flexibility is part of the deal, so if you don't need it, you may find you can get a lower interest rate elsewhere.

Current account mortgages, offset and all in one mortgages

Current account mortgages combine a mortgage and a current (banking & cheque) account. These are good if you like the option of making overpayments on your mortgage (e.g. if you are self-employed or receive bonus payments). The other advantage is that interest is calculated on a daily basis, so when you pay money into your account, like your monthly wage, the overall loan size is lowered, so reducing the total amount of interest paid.

It's easiest to think of a current account mortgage as a very large overdraft. When you have your salary paid into your account each month, the overdraft is reduced and therefore so is the interest owed. Even when you take out money from your account over the month, because the total overdraft has been temporarily reduced, the interest that builds up is lower and the time to pay off your mortgage is reduced.

Offset and all-in-one mortgages, like current account mortgages allow you to offset the balance of your mortgage and other borrowings you have, like loans and credit cards, against any money you have in a savings and/or current account that's held with the same lender. All-in-one accounts are similar to current account mortgages, but instead of having separate accounts for your savings and borrowings, your money may be combined in one single account.

Key pros and cons of current, offset and all in one mortgages

Pros

• All of your money works for you. As soon as your salary and other money is paid into your account it starts to reduce the amount you owe on your mortgage.
• Interest is calculated daily, so any payments into your account work to reduce the interest you have to pay straight away.
• If you pay in more than you take out, you may be able to repay your mortgage more quickly than with other types of mortgage, and you could save thousands of pounds in interest.
• It could be a cheaper way to borrow for some people.

Cons

• These mortgages can be difficult to understand as they are quite complex.
• You need to be disciplined to make sure you keep on track with your mortgage payments.
• With some types of mortgage you have your mortgage and bank account together, so every time you get a balance you'll be overdrawn - until your mortgage is paid off. Some people may find this depressing!