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Complete Guide to Mortgages |
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Flexible Mortgages
Changed the face of
the UK home loan market when they were introduced in the
mid-nineties. They allow you to take more control over
your finances thanks to a number of features that set them
apart from more conventional mortgages.
Overpayments:
You can
make regular or occasional extra payments without
incurring early redemption penalties. This enables you to
pay off the loan with less money and to pay it off more
quickly. Equally, should you gain an unexpected windfall,
no penalty charge will be levied if you decide to pay the
mortgage off in full.
Underpayments:
You can
make reduced payments for one or more months during a
period of reduced income or extra expenditure. Most
lenders require you to have built up a sufficient
overpayment reserve although some allow you to overpay
from the start. You will need to get permission
beforehand.
Interest
calculated daily: Every
overpayment has an instant effect on the total amount that
you owe as interest is calculated daily rather than
annually. This means that the balance is instantly reduced
and no further interest is charged. Equally, underpayments
are reflected straightaway in the balance.
Payment
holidays: You
can take a break from paying your mortgage for one or more
months. Some lenders limit the frequency of underpayments
or holidays, some only permit them after six, 12 or 24
months, and others do not permit payment holidays in
certain circumstances, such as redundancy.
Drawdown
facility: You
can withdraw money up to a pre-agreed borrowing limit, or
equal to the sum of overpayments made previously. Since
interest is charged at the same rate as the mortgage, this
is a cheaper way of borrowing money than through personal
loans or credit cards.
Control
your finances:
Where
flexible mortgages both innovate and potentially cause
problems is that they give you control over your own
finances. You can reduce the term of your mortgage by
several years if you make regular overpayments or pay in
lump sums. Paying off your mortgage early can also
potentially save you thousands in interest repayments.
However, if you make underpayments and take payment
holidays, the overall amount you owe will increase. Your
mortgage repayments will be re-calculated to ensure the
mortgage is still repaid in full by the end of the term.
And if you aren't going to use any of the features of a
flexible mortgage then there is no point in having one as
you will get a more competitive rate elsewhere. Most
flexible mortgages have variable rates, some now coupled
with attractive initial fixed or discounted rates to
entice customers, but bear in mind you are still paying a
slight premium for the advantages of being able to overpay
without penalty.
Who
does a flexible mortgage suit?
People
on a variable income such as those who get a monthly or
quarterly bonus and can make overpayments
Self-employed people who may have lean times can
therefore underpay occasionally
Those who want to have a career break - to go
traveling or have a baby - the ability to overpay can
allow them to budget for a payment holiday later
Who
does it not suit?
- First-time
buyers who need stability and won't have the means to
benefit from the flexible features.
- Those who are looking to minimise payments in the
short term as flexibles may not provide the most
competitive rates
- Those without the financial discipline to overpay
enough to cover the temptation of underpayments
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Whatever Your Circumstances.....
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