Flexible Mortgages- A Guide

16/11/2011 11:51:26

Flexible Mortgages A GuideInterested in flexible mortgages but not exactly sure what they entail? This type of home loan can look like an incredibly good deal on the surface. A mortgage that allows a degree of flexibility and gives you a greater degree of control over the repayments is an attractive prospect. They are especially popular with self-employed people and those with variable incomes.

It is possible to save money if you choose your product wisely.

However, its essential to be aware of whats involved before you agree to the loan terms.

Not all flexible mortgages are the same. They may have common aspects but some arent as flexible as others.

You absolutely must check their features and terms if you want to get a genuinely good deal.

What are Flexible Mortgages

Although their features can differ, flexible mortgages in general allow borrowers to make overpayments and underpayments. The idea is to give more control to the borrower and make mortgage repayments fit with fluctuating finances and changes in lifestyle. They have become synonymous with greater financial freedom as in theory they allow you to borrow back overpayments.

Features of flexible mortgages

A genuinely flexible product will possess the following features:

Overpayment

One of the most attractive features of flexible mortgages. The idea is to enable borrowers to pay off the loan by paying more than they have to. It doesnt take a rocket scientist to work out that early repayment can save thousands in interest. Look out for products that allow you to make both small and large overpayments. Check the maximum amount you are allowed to overpay.

Underpayment

It is ideal for those with fluctuating incomes. If youre having a lean month you can choose to pay a figure under the agreed amount. Obviously its not a great idea to underpay on a regular basis as it will increase the repayment period. However, it can be a godsend – particularly at times when unexpected expenses pop up!

Payment holidays

Many people are put off buying property as they imagine their wings will be clipped and theyll be unable to do things such as travelling. Flexible mortgages aim to get over this hurdle by offering borrowers the chance to take payment holidays. These are usually allowed for up to 1 year. However, you must have made enough overpayments to cover your mortgage holiday. Also check the allowable timescale. They vary from product to product.

Borrowing back

Unexpected expenses are never fun. Cars break down – as do boilers! Flexible mortgages with a borrow back feature are a little like a savings account. If youve made overpayments but need to gain access to some of the money, you can. Its a useful feature to have in weak economic climates where interest rates on savings accounts are low.

Lack of redemption fees

In theory, flexible mortgages should allow you to repay the full amount of the loan without redemption penalties. However, this isnt always the case, especially with fixed and discounted rates.

Daily interest calculation

Make sure the product you choose has this feature. The interest on fully flexible mortgages is calculated daily. You will save money in the long run as any overpayments are credited to your mortgage account on the day instead of annually and in arrears.

Flexible mortgages can be very profitable and give you extra control of your finances. Do your research thoroughly and talk to a mortgage broker or financial advisor if any aspect of a product is unclear.

Remember – Flexible mortgages are only truly flexible if they feature all of the above.

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