Outlined below are some useful flexible mortgage tips. The most prominent addition in recent years to the mortgage industry has been the flexible mortgage. As the name implies, it offers greater flexibility than the traditional mortgage. Flexible mortgages are fast becoming the most popular way of taking out a new mortgage. The reason for this is that this type of mortgage allows you to take control of your mortgage and not the other way round.
Unlike some traditional mortgage loans that still charge mortgage interest on an annual basis, fully flexible mortgages calculate interest daily, which means that any overpayments you make are immediately credited against your loan, thus reducing your interest costs. It means you get the maximum benefit from your overpayment benefits immediately, since you don’t need to wait for an annual interest calculation.
Many self-employed people whose income varies from one month to the next find flexible mortgages particularly helpful. They can make overpayments when earnings are at the annual peak and cut payments when earnings fall again.
Some flexible mortgages allow you to withdraw sums you have overpaid into your mortgage account for emergencies.
A flexible mortgage allows you to make additional or lump sum payments in excess of your scheduled amount, enabling you to pay off your mortgage early. By reducing the capital amount of your mortgage in this way, you are also reducing your monthly interest payments. You may take this money back at any stage or use it to take a repayment “holiday”.
This gives you the flexibility to manage your mortgage payments to suit your cash flow needs as your circumstances change. These Flexible Mortgages allow you to repay capital early, take back some cash you have paid in and postpone payments. Some are run as substitutes for current and savings accounts, so all your money is working to minimise interest on the mortgage.
Some mortgage lenders offer a current account arrangement with their flexible mortgages. You can pay your monthly salary into the account thereby reducing the amount outstanding and the interest payments. For the rest of the month, you can use the account for day-to-day expenses and to pay direct debits. Some lenders require borrowers to pay in their salaries as soon as the account is up and running.
The advantage of a flexible mortgage is that all money is controlled within one account and savings can be used to offset the debt. With flexible mortgages interest is only paid on the balance outstanding at the end of each day, leading to less overall interest payments.
The flexible mortgage allows you to pay the mortgage back quicker than your agreed monthly repayments stipulate. Traditional mortgages would charge you for repaying early, but with a flexible mortgage you can repay early, save on the interest, and reduce the total amount owing.
Truly flexible mortgages will allow you to underpay – however this will only usually be offered if you have overpaid enough to cover the difference. In the same way as you can with underpaying, if you are keeping up with repayments and have ideally overpaid, you will be able to payment holidays.
The flexible mortgage will not charge you for moving mortgage lenders as most traditional mortgages will. You are free to overpay, underpay and swap mortgage lenders without financial penalties.
There are no standard repayment methods. Each mortgage provider will specify the extent of flexibility on its Flexible Mortgage and the interest rate may be variable or fixed.
Before taking out a flexible mortgage, make sure you are aware of how you handle your finances. If you are inclined to raid your savings on a regular basis, a flexible loan is unlikely to suit you.
Most mortgage lenders offer an annual statement showing the balance of the account, the number of overpayments you have made and how much interest you have saved.
Many flexible mortgage providers now offer tracker rates, so you can now enjoy the elements of a flexible loan while following the rise and fall of interest rate movements.
If you simply want to be able to make the odd lump-sum repayment or to overpay on a regular basis, it may be a good idea to look at what else is on offer in the mortgage market. As the flexible mortgage becomes even more popular, many lenders are offering conventional mortgages with flexible elements.
About the author
John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the www.directonlineloans.co.uk website.