Flexible mortgages

Many lenders now offer flexible mortgages. These are particularly suited to today’s lifestyles, since jobs for life are now virtually unknown and your income may fluctuate widely during your working life, especially if you take career breaks to raise a family, say. Flexible mortgages offer some or all of three types of flexibility:

• Overpayments You can pay off your mortgage more rapidly by making regular overpayments or by paying off ad hoc lump sums without incurring any redemption penalties. Flexible mortgages recalculate your outstanding mortgage balance on either a daily or monthly basis, so your interest payments immediately adjust to any over payment.
  

• Underpayments You can reduce your regular mortgage payment or even take a complete payment holiday without being in default. There will be conditions attached to this option. For example, you might have to have built up a reserve of overpayments before being allowed to underpay. Also, underpaying increases your outstanding mortgage balance, and there will usually be a ceiling on the overall amount you can borrow (for example, 90 per cent of the value of your home).
  

• Further loans You can withdraw extra lump sums from your mortgage account to be used for any purpose, without going through the formality of applying for a new loan. Once again, there are usually conditions. For example, you may have to have built up a reserve of overpayments against which you can borrow. And there will be a ceiling on the overall amount you can borrow through the original mortgage plus any subsequent loans.

Not all flexible mortgages offer all of these features, so you will have to shop around.

In response to the advent of flexible mortgages, many lenders have either stressed or improved the flexibility of their traditional mortgages. For example, at least one lender now waives the normal redemption penalties where borrowers pay off up to 10 per cent of their mortgage balance a year. So before switching to a flexible mortgage, it could be worth checking what flexibility your existing lender can offer.

James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.

All-in-one Mortgages

An increasing number of lenders offer all-in-one mortgages that combine a flexible loan with a current account and, in some cases, savings accounts and a credit card as well. In its simplest form, called a ‘current account mortgage’ (CAM), you pay your salary direct into the mortgage account where it immediately reduces your mortgage balance. You then draw against the account for your normal spending as you would with an ordinary current account. The mortgage balance and interest on it is calculated daily, so even money left in the account for only a short period of time has some impact on the cost of your mortgage. In the more sophisticated versions (called ‘offset mortgages’), you have several accounts – one each for the mortgage, your current account, savings account and so on – running alongside each other. Each day the net balance for all the accounts is calculated and interest worked out on the overall total.

On the face of it, all-in-one mortgages are very efficient. Any positive balance in you current or savings account reduces your mortgage balance and so saves you interest. In effect then, you current account balance and savings are earning the morning rate of interest. Not only is that typically higher than the rates available on savings, but you are not charged any tax on the interest saved.

In effect, an offset mortgage puts you in a position where you are devoting the bulk of your savings to reducing your mortgage. This can save thousands of pounds off the cost of your mortgage and could mean you pay off the loan early. You still have the flexibility to divert your savings instead to other uses, in which case you give up some of the mortgage cost savings.

Of course, you don’t need an offset mortgage to pay off your loan early. You could have an ordinary mortgage and a completely separate savings account. From time to time, you could use your savings to pay off a chunk of your mortgage. That too would save you thousands of pounds in mortgage costs and could mean paying off the loan early. But, unlike the all-in-one mortgage, your savings would not earn the mortgage rate of interest, you would have to pay tax on the savings interest and, having paid off part of the mortgage, it would be more difficult to change your mind and use your savings for some other purpose after all (because you would need to take out a new mortgage to ‘get back’ your savings).

The drawback of all-in-one mortgages is that the mortgage rate of interest is often higher than deals you could get elsewhere and, in particular, there are often no special deals, such as a low discounted rate for the first few years. If you have only a low balance in your current account and little in savings, the benefits you get from combining the accounts may be too small to outweigh the extra cost of the mortgage. And combining your finances in this way could be confusing, especially in the case of a CAM where you have just a single account for both your mortgage and current account. You need to be the sort of person who can efficiently keep track of their money.

If you are good with your finances, generally have a high current account balance, have reasonably high savings and you are a taxpayer (particularly a higher rate taxpayer), an all-in-one mortgage could be a good choice. But check the mortgage is reasonably priced and has all the features you want.

James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.

What is a Bad Credit Mortgage ?

Things such as County Court Judgements (CCJ's) or a poor credit history can scupper the chances of you getting a personal mortgage because mortgage companies deem you a high risk.

If you are self-employed, and even have a pristine credit history, you may find it just as difficult to get a mortgage due to your circumstances, which is unfair.

However, there are more and more specialist mortgage companies that are sympathetic and able to offer bad credit mortgages to people - as well as mortgages for the self employed.

Many of these companies do not charge excessively high interest rates as they have done in the past, meaning that you should be able to get a mortgage and pay a fairly realistic interest rate.

Apart from the obvious benefit of taking out a mortgage for whatever purpose you need it for, having a mortgage can actually improve your credit scoring - making it easier for you to borrow money and get credit in the future! However, you will need to make your monthly repayments on time, and this will help improve your credit score over time.

Of course, when choosing a bad credit mortgage, do shop around. While there are understanding lenders out there willing to provide a mortgage without charging you the Earth, there are still, sadly, some unscrupulous mortgage companies.

Do your homework - get several quotes; check out the interest rate and any financial penalties you would be liable for should you pay the mortgage off early. And make sure you are fully happy with the amount you are repaying.

How the web can help you if you are looking for a bad credit mortgage

If you have a poor credit history, finding a mortgage specifically for people with bad credit can be difficult. And even if you do find a mortgage, how do you know that it is the right one for you?

Using the internet can help. There is tons of information on there relating to bad credit mortgages such as free guides, as well as access to providers of bad credit mortgages.

Going online also allows you to compare multiple providers so that you can look at all the product features and benefits to decide whether it is right for you.

There are also websites that accept online mortgage applications and there are hundreds that offer free and immediate online quotes. This means that you can see how much you can really afford to pay out for a mortgage.

James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.
More information :
bad credit mortgage

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Individual Savings Account Mortgages Aka ISA Mortgages

With this type of interest-only mortgage, you pay into an individual savings account (ISA) to build up enough to pay off the mortgage at the end of its term. ISAs are a tax-efficient way in which to invest in shares, unit trusts and many other investments: tax-efficient, because all the income and growth from the underlying investments is – for now – completely tax-free.

ISAs replaced personal equity plans (PEPs) from April 1999 onwards. From that date no new PEPs could be started but old PEPs can continue. You can earmark any PEPs you already hold, as well as any ISAs you now take out, to repay your mortgage. With both PEPs and ISAs, dividends from shares are tax-free only until April 2004, but from then on they are due to become taxable. Other income and gains will continue to be tax-free.

Despite the tax advantages which ISA mortgages, and in the past PEP mortgages, have over endowment mortgages, borrowers have been slow to switch to them.

Cynics suggest that this is because the commission paid to mortgage advisers is lower on an ISA or PEP mortgage than on a traditional low-cost endowment mortgage, but there is more to it than that. People are cautious by nature about new ideas and, until the introduction of bond-based PEPs and ISAs this type of mortgage was always a higher-risk option than a with-profits endowment mortgage. Unlike the with-profits endowment, where the addition of bonuses gives you an increasing value over the years, the investments in a share-linked ISA or PEP can fall in value as well as rise. Over the long term, shares, unit trusts and investment trusts are likely to show good returns and might be expected to beat the more broadly based investment funds underlying with-profits endowment policies. But, at any point in time, stock markets may fall, and the value of your ISA or PEP along with them. So although your payments into an ISA (and in the past to PEPs) will be pitched at the level expected to produce a fund large enough to pay off the mortgage at the end of the term, there is a significant element of uncertainty about the future. However, since there are no restrictions on withdrawing money from your ISA or PEP, as the end of the mortgage term approaches you could make a practice of cashing in part or all of your investment when share prices are high and reinvesting in a lower-risk alternative. Share-linked ISA mortgages are suitable only for people who would place themselves around six or more on a ten-point risk scale.

You can use ISAs – and, since 6th April 2001, PEPs also – to invest in medium-risk investments such as corporate bonds, gilts and preference shares. But it is doubtful that these investments would produce a high enough return over the mortgage term to make this type of mortgage worthwhile, bearing in mind the relatively high cost of borrowing now that mortgage tax relief has been abolished.

There is no built-in life cover with an ISA mortgage. If you have dependants, consider taking out term insurance.

Payments into an ISA are generally very flexible. This has the advantage that, if you run into temporary difficulties, it is easy to cut down or suspend payments into the ISA for a while. The flipside of this is that you need the self-discipline to ensure that you pay steadily into the ISA enough to build up the sum needed to repay the mortgage at the end of the day.

This flexibility is particularly valuable since the abolition of tax relief on mortgage interest. There are no longer any tax advantages in keeping a mortgage for the long term. If you can afford to, it makes sense to pay off your mortgage as rapidly as possible. An ISA mortgage gives you the necessary flexibility to completely repay your mortgage before the original term is up.


James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.
More information :

http://www.mortgage-here.co.uk
http://www.mortgage-how-to.co.uk
http://www.mortgage-how-much-can-i-borrow.co.uk