Flexible Mortgages
Flexible current account/lifestyle mortgages - What are they and are they worth considering?
The first point to remember is that these products are not interest rate driven.
They are generally designed to offer a competitive variable interest rate but with other facilities attached which in some cases are designed to give a one stop mortgage/savings account/bank account rolled into one.
Drawdown Facility
Many of these products will enable you to draw additional lump sums from your mortgage as and when you need them.
These additional sums are then added to your mortgage debt and interest charged accordingly. The lender will usually set a predefined limit up to which you can borrow and they may in some cases give you a cheque book to use in order to draw down these funds.
Part Repayment Without Penalty
Most Flexible Mortgages will allow you to pay off lump sums at any time without penalty. Indeed some even include the facility 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 credited to the account at any time without penalty so that the mortgage can be paid off early if required.
Interest Charged Daily
Most mortgage lenders in the UK calculate the interest to be charged on the mortgage account based on the balance outstanding at the end of the year.
This means that if you pay off lump sums during the year you will not receive credit for this payment until the next financial year.
Just as important however, is the fact that with a repayment mortgage you are making repayments of capital each month which are not taken into account until the end of that year.
Over the entire term of the mortgage this can result in thousands of pounds of extra interest having been paid. Several lenders have now converted to a daily calculation of interest which means that any reduction in the mortgage debt is taken into account immediately and the interest charged is therefore reduced accordingly.
This is a common feature of most of the 'Flexible' schemes.
Payment Holiday
Many of these products allow the borrower to take a payment holiday within certain limits.
This could mean that you are allowed to miss up to six months payments which are then added to the mortgage debt until the pre-agreed limit is reached.