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20 things you should know about Flexible Mortgages
Flexible mortgages have been popular abroad for years, but British lenders have only relatively 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. However, 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, although 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.
Similarly, 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 lenders are happier for customers to take a complete break from their mortgage payments for a few months than to reduce their months payments. Payment holidays are usually only allowed after you have been paying of your mortgage for a while.
Some lenders offer a current account arrangement with their flexible mortgages. You can pay your monthly salary into the account, 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. This is known as offsetting.
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 or a base rate tracker, although a handful of 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 the ability 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. As the flexible mortgage becomes 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. Such 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 variable incomes.
Make sure you understand the terms, 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 falling 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 are now offering tracker rates, so you can now enjoy the elements of a flexible loan while following the rise and fall of interest rate movements exactly.