Flexible Mortgages PDF

Terms for subsection: C. Flexible mortgages Term: 01. Mortgages with flexible options Mortgages with flexible options Borrower’s circumstances can change much more quickly and significantly nowadays than was the case a few years ago For example, job changes are a frequent occurrence during a person’...

Terms for subsection: C. Flexible mortgages Term: 01. Mortgages with flexible options Mortgages with flexible options Borrower’s circumstances can change much more quickly and significantly nowadays than was the case a few years ago For example, job changes are a frequent occurrence during a person’s working life and the divorce rate is much higher than in the past Therefore, growing demand for flexibility and some lenders offer mortgages giving the borrower many more options than were available in the past ‘Flexible mortgage’ is a generic term and these types of mortgage are marketed under many brand names such as: Personal choice mortgages Freedom mortgages Flexible mortgages Features differ widely from lender to lender with some or all of the following options: Overpaying the agreed monthly payment Underpaying the agreed monthly payment Annual payments made over a reduced period, such as 10 months Stopping payments temporarily Lump sum payments Cheque book to withdraw pre-approved further advance; or Ability to make 13 ‘monthly’ payments per annum Access to these options may be restricted For example a lender may restrict a flexible mortgage to employed people over 21 with a salary over £15,000 and a clearly defined career path Others may target self-employed who would benefit from flexibility offered Arrangement and early repayment charges common with these mortgages Recommended Reading: Moneyfacts - What is a flexible mortgage Virgin Money - Fully flexible mortgages Term: 02. Offset and current account mortgages Offset mortgages With an offset mortgage the customer will have their mortgage, savings and current account with one provider Typically, different interest rates will apply to each of the different accounts Interest will be calculated daily and any positive balances in the savings/current account are offset against the negative mortgage balance This keeps the amount outstanding on the mortgage to a minimum Potentially saving thousands of pounds in interest and/or repaying the mortgage earlier than expected Some lenders allow personal loans and credit cards to be included in the arrangement This results in these arrangements being charged with interest at levels applicable to the mortgage As opposed to the expected rates, which would normally be higher than mortgage rates However, this means that what would typically be short term debt is converted to long term debt Unless borrower maintains payments to short term loans at normal level These other borrowings will still be unsecured and the property is not at risk if they are not paid Current account mortgages Current account mortgages (CAMs) work in a similar way to offset except only one account is used The single account is a current account into which the borrowers salary and savings are paid and the mortgage payment debited Therefore, it’s like a current account with a large overdraft facility that is charged at interest rates the same as those applying to mortgages Any excess income over outgoings each month reduces the mortgage As does any savings Term: 02. Offset and current account mortgages (2) Offset and current account mortgages (2) With both offset and current account mortgages automatic overpayments are accessible should the borrower need to access funds If overpayments are not used to reduce the outstanding mortgage this decreases the pace at which the mortgage is repaid Some lenders will allow borrowers access to funds in excess of overpayments made resulting in the mortgage balance exceeding the original loan Ability to access additional funds referred to as a drawdown facility Therefore, borrower needs to be disciplined to ensure that they don’t run into difficulties with their secured lending Recommended Reading: Current Account Mortgages John Charcol - Best Offset / Current Account / Flexible Mortgage deals MoneyHelper – Mortgages with Special Features Online Mortgage Adviser – Current Account Mortgages Offset Mortgages MoneySuperMarket - What is an offset mortgage? Halifax - Offset Mortgages Which? – Offset Mortgages