Flexible Mortgages
Flexible Mortgages have been in the UK for around ten years and account for over a fifth of gross mortgage lending. Also known as Lifestyle mortgages or Australian mortgages (from where they were imported), flexible mortgages enable you to make extra mortgage repayments when you have any extra funds, and to reduce or even skip repayments if necessary.
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Flexible mortgages allow the borrower to take control of their finances, enabling them to make the most of their money. How these tend to work is that you have one account that combines your current account with your home loan, and you tend to have a cheque book attached.
There are many lenders who claim to offer a Flexible mortgage or Lifestyle mortgage, but these terms are sometimes used lightly. For a truly flexible mortgage, there are certain elements to look out for….
First of all, many flexible mortgages charge interest on a daily basis, whereas standard mortgages are calculated annually. This means that a borrower on a flexible mortgage who overpays will get any payments benefit immediately rather than waiting for a year. Someone on a standard mortgage scheme who makes an overpayment may have to wait for a year before the capital is reduced by the payment.
With a true Flexible mortgage, the ability to overpay – ie pay more into your mortgage account than is due whether by a lump sum or regularly – is again beneficial to the borrower. By overpaying, a borrower can reduce the total interest owing, paying the loan off early and saving money on interest.
That being said, with a flexible mortgage you should also have the ability to underpay (normally after you have overpaid enough to cover the difference between your normal payment and your underpayments). With a flexible mortgage, you should be able to take a repayment holiday, if you need to so.
In most cases, the stipulation by the mortgage lender will be that you can have a payment holiday providing that you have overpaid first to cover this.
Again, a true benefit of a flexible scheme is that there should not be any redemption fees (ie financial penalties) should you pay off large chunks of your mortgage or switch mortgage lender.
Finally, check out whether you can borrow back money that you have overpaid if you ever should need to.
Flexible, Australian or Lifestyle mortgages -whatever you call them – can be a way of getting more for your money. You can overpay when you get have extra money and can underpay when you are struggling., so they are also are particularly useful for the self-employed and people with uneven income.
