It s also a good way to build up equity in a property. Borrowers who have few cash reserves for a deposit but good monthly cash flow can use a short mortgage term to cut loan to value ratio on their mortgages, providing a buffer should house prices fall. The snag with a short mortgage term is that it ties borrowers in to higher repayments, whatever their circumstances. Fail to keep up with the payments and you will run up arrears, which can result in penalties. Making overpayments on an ad-hoc basis is a more flexible option.
Most banks allow lump sum overpayments.
However, on fixed rate, capped or discounted mortgages, there will be restrictions. Modern, variable rate loans should have no restrictions. Flexible mortgages Flexible mortgages are a newer type of loan, with built-in facilities for overpayments and often, underpayments. Some flexible home loans are little more than standard variable rate mortgages with some flexible window dressing and easier rules for overpayments. The best allow underpayments and payment holidays as well as overpayments.