Traditional repayment mortgages have always been fairly easy to understand. You take out your loan which is secured on your property, then you make a payment every month until it is paid off. If you move home, you apply for a new deal. And you can't miss a payment, or pay extra if you're feeling flush.
But flexible mortgages have changed all that. They allow you to run your mortgage within the ebb and flow of your lifestyle, provided you keep to the terms within the agreement. A truly flexible mortgage has up to six key features – some home loans may not have all of these, but they may offer other benefits, so it's worth deciding which ones you may use and then weighing up which product you should take.
Here are the essential features of a flexible mortgage and how they could benefit you (check your mortgage product T&Cs)
Overpayments: If you're on a variable rate mortgage, you'll have seen your monthly payments drop significantly over the past year or so because of the reduction in the Bank of England base rate. And while many borrowers are using the extra cash to pay off other debts, or buy those longed-for items, another option is to reduce the amount you owe on your mortgage. A flexible mortgage might allow you to make a regular higher payment each month, or pay in lump sums to reduce the debt. And then you can use this either to reduce your monthly payments further, or cut the amount of time it will take you to repay the mortgage – either way saving you money on your interest.
Daily interest calculation: Different lenders calculate interest differently, and until the early 90s most banks and building societies worked out your rate on an annual basis. This meant that if you had a repayment mortgage, any of the capital you paid off would only be attributed to the debt once a year. New technology means that most lenders will now calculate the interest daily. Borrowers who stick to a standard payment plan won't really see much of a difference, but if you make overpayments then you'll want to know you get the benefit straight away.
Portable: Changing mortgages when you move home isn't just about the interest rate; you could also have to pay an arrangement fee for your new deal. But if your mortgage is portable, it means that when you do move house you could transfer the existing mortgage over to the new property, as long as it meets your lender's criteria.
Additional borrowing: In many cases, extending your mortgage is a cheaper option than taking out a personal loan or credit card to pay for large expenses. So if you have the option of increasing your mortgage at a low rate to pay for large, one-off purchases, such as an extension or a wedding, you could find yourself with a better deal. Remember, though, that you may end up paying off the debt over a longer period, which means you will pay more interest, than with a shorter term loan and the additional borrowing will only be available subject to the lender's borrowing criteria.
Think carefully before securing other debts against your home. Your home may be repossessed if you do not keep up repayments on your mortgage.
The information given in this article was correct as at 7th April 2010. It does not, however, take account of any changes in regulations, the law or interest rates since that time.
This article is not a substitute for obtaining professional advice from a qualified person or firm.
Examples given of products and services are not exclusive. Other companies may provide the same products and services, and inclusion of a product or service should not be taken to indicate that Barclays recommends it over any similar product or service.
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