UK homeowners advised to look at 'flexible' mortgages
With interest rates rising, having a flexible home loan mortgage could mean the difference between being able to meet your repayment obligations and defaulting on your home loan. However, with over 8,500 different mortgage products in the UK being offered through 125 different home loan lenders, it can be a minefield finding out whether or not the home loan product you have is really a 'flexible' mortgage.
Moneyfacts.co.uk defines a flexible mortgage as one that: "allows underpayments, overpayments, repayment holidays and charges interest on a daily or monthly basis", according to Julia Harris, senior mortgage analyst at Moneyfacts. In this way, UK homeowners who opt for a flexible mortgage deal can make repayments whenever their financial circumstances best suit them, also allowing them to save thousands of pounds in interest by letting them pay off their home loan early without incurring any early redemption fees.
However, although they may be tagged as being 'flexible', Moneyfacts state that typically only 49 per cent. of UK home loan lenders offer one or more genuinely ‘flexible’ home mortgage loan products, as most UK home loan lenders will only allow underpayments and repayments holidays if the homeowner has previously made overpayments and even then, it is likely the underpayments and repayment holidays will be limited to the amount of credit they have from their overpayments.
Nevertheless, Julia Harris of Moneyfacts calculates that "Anyone with a flexible mortgage who has any spare savings that could be invested would be well advised to consider this – if you could afford an extra £97.97 per month on a mortgage of £130,000 over 25 years at a typical 5 per cent. interest rate, this would reduce the term of the mortgage by a massive 5 years and save you a whopping £22,000 in interest."
Uncertainty over future interest rates has also lead to an increased interest in offset and current account mortgages recently. Today, more than 30 lenders in the UK offer their customers some form of offset home mortgage loan product. Offset and current account home mortgage loan products take any extra savings the customer has each month and applies this money towards repayment of their home mortgage loan, thereby potentially saving the homeowner thousands of pounds over the term of the mortgage in interest payments.
Commenting on the use of offset and current account home mortgage loans, Julia Harris said, "If used appropriately, they can be the ultimate in flexible mortgages, allowing your term to be reduced and providing tax saving opportunities, particularly for the higher taxpayer."
However, Julia Harris also cautions UK homeowners that "if you are looking for a flexible mortgage
, make sure you know the exact terms, as lenders’ conditions vary dramatically."
1st February 2007
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