Flexible Mortgages
The flexible mortgage is a relatively new type of mortgage, or at least new in the UK. It was invented & has been used in Australia for many years, but is now growing in popularity in this country as more and more lenders adopt it.
A bit of background
The traditional UK mortgage has been with us for many generations. It was designed with the assumption that people had full time employment and could therefore cope with set monthly payments for a 25 year period. However, as many people have discovered, the traditional mortgage does not always cope well with modern employment trends, such as contract working, self employment, job sharing and part time work.
This is where the flexible mortgage comes in. It has the facility for both over and underpayments built into the loan. What this means is you can overpay your mortgage when finances allow (pay rise, bonus, an inheritance etc.), and then, providing you have made overpayments in the past, underpay when finances are tight (job loss, change in circumstance etc).
A Generic Example
If you overpay your loan by £50/month for say five years on a flexible mortgage, that cumulative amount is then made available as a cash reserve for you to draw on at any time during the remainder of the mortgage term. This cash reserve can normally be drawn on for such things as, taking payment holidays or making large purchases. Indeed some lenders actually issue the borrower with a cheque book and encourage them to use the account as an all encompassing bank account. However the amount you can withdraw is limited by the original sum of the loan.
The main benefit of borrowing against your 'mortgage account' is that mortgages are usually the cheapest form of borrowing. In other words, you'll pay less interest on the amount you borrow!
If on the other hand, you overpay but never make any withdrawals, you can save a significant amount of interest over the life of the loan. This is because most lenders who offer this type of loan calculate the interest you pay on a daily basis (see what to look for), therefore any overpayment comes immediately off the debt and interest payments are adjusted accordingly.
See Also: Flexible Mortgages: What to look for
Your home may be repossessed if you do not keep up repayments on your mortgage.
Flexible Mortgages
The flexible mortgage is a relatively new type of mortgage, or at least new in the UK. It was invented & has been used in Australia for many years, but is now growing in popularity in this country as more and more lenders adopt it.
We can search from over 40,000 mortgage products.... Mortgage Quote?
A bit of background
The traditional UK mortgage has been with us for many generations. It was designed with the assumption that people had full time employment and could therefore cope with set monthly payments for a 25 year period. However, as many people have discovered, the traditional mortgage does not always cope well with modern employment trends, such as contract working, self employment, job sharing and part time work.
This is where the flexible mortgage comes in. It has the facility for both over and underpayments built into the loan. What this means is you can overpay your mortgage when finances allow (pay rise, bonus, an inheritance etc.), and then, providing you have made overpayment's in the past, underpay when finances are tight (job loss, change in circumstance etc).
A Generic Example
If you overpay your loan by £50/month for say five years on a flexible mortgage, that cumulative amount is then made available as a cash reserve for you to draw on at any time during the remainder of the mortgage term. This cash reserve can normally be drawn on for such things as; taking payment holidays or making large purchases. Indeed some lenders actually issue the borrower with a cheque book and encourage them to use the account as an all encompassing bank account. However the amount you can withdraw is limited by the original sum of the loan.
The main benefit of borrowing against your 'mortgage account' is that mortgages are usually the cheapest form of borrowing. In other words, you'll pay less interest on the amount you borrow!
If on the other hand, you overpay but never make any withdrawals, you can save a significant amount of interest over the life of the loan. This is because most lenders who offer this type of loan calculate the interest you pay on a daily basis (see what to look for), therefore any overpayment comes immediately off the debt and interest payments are adjusted accordingly.
Flexible Mortgages: What to look for
Interest charged daily
This is one of the major advantages of a good flexible mortgage. Most traditional mortgages calculate the interest charged on a mortgage at the end of the year, or at best the end of the month. The problem with this is if you pay capital off early, interest charges do not reflect the reduced capital until up to a year later.
Cumulatively, this adds up to very significant interest being charged on money already paid back. By charging interest on a daily basis, flexible mortgages only charge interest on the amount borrowed at any time. This saves thousands if regular overpayment's are made.
Withdrawal facility
Many flexible mortgages will allow you to draw further funds from your mortgage when you need them, without the need for any further authorisation. These withdrawals are simply added to the mortgage debt, so allowing you to borrow at your mortgages interest rate.
Some lenders take this facility to it's logical conclusion & actually issue you with a cheque book, allowing you to use your mortgage as an all encompassing bank account.
The lender will set a predefined limit to the amount you can borrow, normally up to 95% of your property's value.
Over & Underpayment facility
A quality flexible mortgage will allow you to make overpayment's as often as you like, whether they be lump sum payments you make every year, additional payments every month or a combination of both, without applying any penalties. Furthermore, some lenders will allow you to take 'payment holidays' of up to six months, providing you've built 'credit' up through previous overpayment's. This can be especially useful for the self employed, whose incomes tend to hit peaks & troughs.
Your home may be repossessed if you do not keep up repayments on your mortgage.
Need help?...For a FREE initial discussion Fill out our enquiry form and we will be happy to answer any questions!! Alternatively, call us now on 01278 439494