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The following topics are covered below:
What is a flexible mortgage?
A flexible mortgage is a mortgage that allows you to adjust your monthly repayments based on your financial situation. For example, you may be able to overpay or underpay your mortgage for a month, or you may be able to take a payment holiday. Some of the most prevalent aspects of flexible mortgages are:
- Overpayments: You can pay more than the agreed-upon monthly repayment set by the lender. Overpaying your mortgage may help you pay off the loan faster and reduce the total interest you pay throughout the loan. However, some lenders may limit the amount of overpayment you can make.
- Underpayments: Certain lenders will allow you to pay less than the agreed-upon monthly mortgage payment for a limited time. This option is typically only accessible if you have already overpaid on your mortgage, and you should always contact your lender before making an underpayment.
- Payment holidays: A mortgage payment holiday, often known as a break, allows you to halt your monthly payments for a given length of time. You’ll still have to pay off your mortgage in full after the holiday, and if you do take a payment break, you may have to pay more interest overall. A mortgage reserve account functions similarly to a secured overdraft, allowing you to draw against the equity in your property. These accounts, however, are no longer readily available or are only available to existing subscribers.
- Drop lock: With this form of mortgage, you can take up a tracker or discount mortgage and then switch to a fixed-rate mortgage without any early repayment penalties.
How can a flexible mortgage benefit me?
Flexible mortgage arrangements typically feature higher interest rates than other options. However, comparing flexible mortgage agreements can sometimes be difficult because lenders have their versions with varied rules. Before using the flexible features, you must meet your lender’s specific requirements.
Among other things, some lenders may require that you have been paying off your mortgage for a certain amount of time before you can make an underpayment or over payment on it. There may also be constraints on how much you can overpay, with some lenders capping overpayments at 10% each year.
When it comes to monthly payments, flexible mortgages give you additional options. When you move, you may be able to underpay, overpay, miss a payment, or ‘port’ your mortgage to a new house, depending on your mortgage. Having this flexibility can help you make your mortgage work better for your lifestyle, for example, if your income varies seasonally. It also means that if you continuously overpay for a long enough period, you may be able to pay off your mortgage sooner than expected.
Advantages and disadvantages of flexible mortgages
Advantages of Flexible Mortgage
- If you are a freelancer or sole trader and your income fluctuates month to month, set monthly repayments may not suit your budget, and a revolving credit mortgage will allow you to pay little or as much as your income allows. In addition, because you’re only charged interest on your outstanding balance each month, there’s a chance to significantly lower interest over time if you earn more.
- Traditional mortgage schemes frequently penalize you with a fee if you overpay or change the amount you pay each month. Revolving credit mortgages give you the freedom to avoid these fees.
- If you have trouble keeping track of all of your funds in numerous accounts, this is a terrific method to combine everything into a single, easy-to-manage account.
- You can pick between a set and declining credit limit, which means you can pay back your debt in stages by reducing your credit limit.
Disadvantages of Flexible Mortgage
Since you can withdraw funds up to your credit limit at any time, a revolving credit mortgage necessitates a great amount of financial discipline to maintain. If you’re not very good at budgeting and can’t help but overspend, you’re more likely to raise the amount of interest accrued than cut it.
A revolving credit mortgage is typically associated with a floating or variable interest rate. This means that your interest rate may fluctuate in response to market conditions over the term of your loan, for good or worse.
Can I get a flexible mortgage under bad credit?
It is possible to secure a mortgage if you have bad credit, albeit it may be more challenging than strong credit. When choosing whether to approve your application for a home loan, mortgage lenders conduct a credit check. This is because mortgage lenders must determine whether you can be depended on to make timely repayments on the total you want to borrow or whether you constitute a risk of default. In general, if you have a decent credit score and meet the lender’s affordability requirements, you may be eligible for a mortgage with reasonable mortgage rates.
However, if you have a terrible credit history, lenders will have to make another decision. They may refuse you a mortgage entirely, or they may grant you a mortgage with higher interest rates to cover the additional risk they believe you pose based on your credit history. A bad credit mortgage is a name given to this type of house financing. Importantly, different lenders will have varied application standards, and some will consider taking on more credit risk than others. Even if your application has been refused outright by one or more banks or building societies, there may be specialized bad credit mortgage lenders ready to offer you a second opportunity.
Can I get a flexible mortgage under low income?
It may depend on your specific circumstances, but you may be able to obtain a mortgage even if you have a modest salary. While the application process may take a little longer, and there may be a few more hoops to go through, you may still be able to buy your next home. Some mortgage lenders will consider other assets you own and the quantity of savings you have in addition to your income. These items could demonstrate that you can still make your monthly mortgage payments even if your income is limited. To obtain a mortgage on a low salary, you must first fill out an application form for the bank or lender you wish to borrow.
The first thing they’ll do is assess your affordability, or whether you’ll be able to make the payments without getting into trouble or losing the house to repossession. To do so, the lender will need to understand your financial situation. Because each lender is unique, it is essential that you shop around to locate one that can offer you the cash and repayment conditions that fit your requirements.
If you’re worried about being turned down by a lender because of your income, it’s a good idea to consult with a mortgage counsellor. They can guide you through the process, recommend lenders who they believe will approve you, and help you make your application appear better.
Max amount of applicants under flexible mortgages?
The maximum number of people is usually three or four; however, the response varies from lender to lender. A handful of mortgage lenders will lend to two applicants on a joint agreement, not only to married couples or civil partners but also to friends buying together who would both live in the property. Some lenders will lend to numerous buyers even if only one of them resides in the property; this is known as a joint borrower, sole proprietor agreement (more on this later).
A three-person mortgage is doable, but keep in mind that some mortgage lenders would only consider this if all the applicants are blood-related. Others will allow friends and family members to be mentioned on the same deeds but will not always let all three applicants declare their income during the affordability assessment (limiting this to two people).
Your best hope for getting accepted for a three-way mortgage where all the applicants’ income is declared is to speak with a broker specializing in multiple-applicant mortgages. They have strong working relationships with lenders who offer these agreements with few restrictions, so you may be confident that you’ll discover a suitable lender the first time.
If you pay more than the agreed-upon amount, you overpay your mortgage. Even if the overpayment is little each month, it will compound and reduce the total amount of interest you’d be required to pay throughout the life of the mortgage, so shortening the term. However, you cannot simply overpay for what you want when you want. It will be determined by the type of mortgage you have. If you have a lifetime tracker mortgage, for example, the interest rate you pay may change, you may be able to make unlimited overpayments. The same is true of a flexible offset mortgage or a lender’s standard variable rate mortgage (SVR).
However, if you are on a deal with tie-ins in which early redemption charges (ERCs) are charged if you break the contract early, you will face penalties if you overspend by more than the stipulated limit. Fixed or tracker deals of two or five years, for example, are examples. In this circumstance, most lenders allow penalty-free overpayments of up to 10% of the outstanding mortgage balance per year. However, before arranging overpayments, always verify with your lender.
The best mortgage rates and bargains are reserved for customers with a sizable down payment. This is because mortgage lenders consider you to be a lower risk. If you have a large loan-to-value ratio, you will often be given a higher interest rate and may be unable to borrow as much money.
Lenders typically divide their mortgages in 5% increments. If you can increase your deposit from 5% (95%) to 10% (90%), you will be able to obtain mortgages with reduced interest rates. If you’re on the verge of a 5% step – say, you have a 14 per cent deposit – it could be worth saving up a little more money or buying a little cheaper property.