A guide to mortgaging your property in the UK
What is a flexible mortgage and should I consider one?
What is a flexible mortgage you have asked; well a flexible mortgage basically allows you to have more say over your mortgage payments. How? A flexible mortgage arrangement gives you the flexibility to overpay if you have spare cash, underpay if you are struggling to repay the loan and even allows you to take a payment ‘break’ if things get really bad, in all giving you greater control over your finances. These mortgages track the Bank Base Rate, and can therefore go up or down in line with any changes that the Bank of England may make to interest rates.
How do they work? Flexible mortgages are interest rate driven. They are generally designed to offer a competitive variable interest rate but with other facilities attached. Some of the facilities which can be attached are designed to give a one stop mortgage and savings account or current account all in one neat package. We have put together some basic information on the additional features commonly associated flexible mortgages...
The Drawdown Facility
Some of the loan deals available will enable you to draw additional lump sums from your mortgage as and when you need them, i.e. if you plan to extend you can draw money to finance the build. These additional sums are then added to your mortgage debt and the interest is then charged accordingly. The amount you can draw upon is set a predefined limit.
Part Repayment Without Penalty
The majority of flexible deals will allow you to pay off a ‘lump sum’ at any period during the term of the loan without penalty; some even include the capacity to have your salary credited to the mortgage account each month. This, used in conjunction with the drawdown facility makes your mortgage account work in almost the same way as your bank account. In addition lump sums can be off your loan account at any time without penalty so that the mortgage can be paid off early if you can afford to.
Interest Charged Daily
Most mortgage lenders in the UK calculate the interest to be charged on the mortgage account based on the balance outstanding annually usually at the end of each year of the loan). This means with a repayment mortgage where you are making repayments of each month they are not actually taken into account until the end of that year. As a result you could end up paying thousands of pounds in extra interest over the course of your loan agreement. It is much better for you and your bank balance if you can find a rate that is compounded daily. This is where the interest on your loan is calculated at the end of each day meaning that your debt, or rather the payment of your debt is taken into account immediately and the interest charged is reduced accordingly.
Payment breaks
Most of the flexible mortgage deals available allow your, the borrower to take a payment break, however this is set between certain limits allowed. For example, your arrangement could signify that you are allowed to miss up to four months re-payments which are then added to the end mortgage until repayed.
Competitive Interest Rates
The majority of the flexible mortgages are based on a variable rate of interest. The lenders who are most actively promoting this type of deal have a tendency to offer a good, competitive variable rate and with some even guaranteeing to keep the rate below the ‘normal’ variable rate for a set period.
Our tip...
We have found through experience that if you choose the correct lender with the best flexible mortgage loan deal then it is certainly in your interests to consider taking them up on their offer. If you feel comfortable repaying a competitive variable rate of interest then the other features associated with flexible mortgage deals make them a smart option over the standard deals on the market. Some of these products are now being marketed as an all round financial planning tool which will enable the borrower to have all their personal borrowings in one place, i.e. current and savings account coupled with the mortgage arrangement.