Flexible
Mortgages - Mortgage Information
What
is a Flexible Mortgage?
Flexible
mortgages (sometimes known as Australian Mortgages)
have been very popular abroad for years, but British lenders have
only recently adopted them as a new way to attract business. Each
lender has a different idea of what makes a mortgage flexible choosing
to combine all or some of a set of flexible features. Flexible features
include regular overpayments, lump-sum overpayments, lump-sum withdrawals
and payment holidays. Customers may also be able to make payments
weekly.
Most
flexible mortgages now offer daily calculation of interest, so changes
to the outstanding balance are taken into account immediately. A
few lenders still calculate interest annually, for which they blame
problems with their technology systems. As daily calculation of
interest becomes increasingly popular, lenders are realising they
will be forced to follow suit.
Most
flexible mortgages do not feature redemption penalties, but some
lenders may charge customers if they choose to pay off the mortgage
in the 1st year or within a special offer period.
Each
lender has a different way of implementing their flexible features.
For example, overpayments may be subject to a minimum amount. Many
lenders will allow underpayments but some restrict when this can
be done. They will usually be allowed once a customer has built
up a reserve of overpayments or has been paying off the loan for
at least six months. Many flexible mortgage lenders are happier
for customers to take a complete break from their mortgage payments
for a few months rather than to reduce their months payments. Payment
holidays are usually only allowed after you have been paying of
your mortgage for a while.
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.
Most
flexible mortgages follow the lender's standard variable rate, although
a few lenders offer short-term discounts. The interest charged on
a flexible mortgage is usually high compared to a short-term special
offer rate, such as a fixed rate or discount. To get the maximum
benefit from a flexible mortgage you will need to actively use the
flexible elements of the loan, otherwise there is little point in
taking out this type of mortgage.
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.
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. Flexible
mortgages are good news for experienced borrowers, especially if
your mortgage term is close to finishing. These borrowers are usually
likely to be able to make regular overpayments on their mortgage
accounts. Self-employed people can also benefit from a flexible
loan, as payments can be adjusted to suit their variable incomes.
Make
sure you understand the terms of the flexible mortgage, as there
is a danger that you will underpay more times than you overpay.
The lender should keep a note of this situation and should write
to you if it looks like you are beginning to fall behind. This however
is not guaranteed. Most 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.
Why
are Flexible Mortgages sometimes called Australian mortgages?
This is because they usually feature something which is common in
Australia - interest recalculation on a daily basis. Most lenders
in this country only do so once a month, which means that there
is a time lag before your overpayments go to reducing your total
debt. As since you pay interest based on what you owe, there is
a wait before your bills go down. Daily interest rate calculation
means that the amount you owe falls each month
as a little more capital is paid off with each mortgage payment.
List
of Major Mortgage Lenders
OCIS
provide general financial information, we urge you to consult an
Independent
Financial Adviser ( IFA )
before making any important decisions about your finances. |
