Flexible/Lifestyle Mortgage
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A Flexible or ‘Lifestyle’ mortgage is
designed to let you to make extra repayments when you have extra money,
and to reduce or even skip payments when necessary. Borrowers will
normally have to build up a reserve through overpayments before being
allowed to underpay or skip payments. The main benefit of flexible
mortgages is that many schemes are offered on a Daily or Monthly
Interest Calculation basis (sometimes referred to as ‘daily rest’ or
‘monthly rest’). Until the arrival of flexible mortgages most, if not
all, UK lenders were charging interest on an annual basis which meant
that borrowers making over-payments were not getting the benefit
straight away because it could be a year before the capital was reduced
by the over-payment. Whereas, on a mortgage where the interest is being
calculated on a daily basis, any over-payment reduces the mortgage
balance immediately hence the borrower will be charged less interest
from the next day. Without going into detail to explain this feature the
up-shot is that over-paying the mortgage on a monthly or regular basis,
even by a relatively small amount, will reduce your mortgage term by
years (hence saving payments). Many flexible mortgages come without any
Early Redemption Charge so the borrower is not ‘locked-in’ to any
particular lender. In addition the interest rate charged is often lower
than the usual Standard Variable Rates charged by the other more
‘traditional’ mortgage lenders. The flexible mortgage concept was
imported from Australia so occasionally you may hear them referred to as
‘Aussie style mortgages’. |
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Current Account Mortgage (CAM) |
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A flexible mortgage linked to a
current account. These mortgages take the benefits of the flexible
mortgage and use the funds held in the current account to offset the
interest eg. on a particular day a borrower has a mortgage balance of
£50,000 and has £2,000 held in the current account. The customer is
charged mortgage interest on £48,000 i.e. the mortgage balance minus the
positive balance held in the current account. Some of the newer entrants
into this sector are also linking savings accounts, credit cards and
personal loans into the mix. For a borrower wanting one home for their
finances this is an attractive option. [TOP] |
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Cashback |
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The Lender, as an incentive, will offer a lump sum of
cash once the mortgage has been taken out. The amount will vary from
lender to lender and on the size of the mortgage. The amounts can range
from a flat fee e.g. £200 to a percentage of the loan eg. 3% of the
loan. Normally the cashback is offered as a package of benefits e.g.
linked with a discount, but pure cashback products are not uncommon.
Mortgages offering a 5 or even 6% cashback can be found which would mean
a borrower taking a £70,000 mortgage would receive £4,200 on completion
(at 6%). As you would expect lenders apply an Early Redemption Charge
with cashback mortgages. Typically a borrower will be locked-in for 5 to
7 years where a substantial cashback has been paid. [TOP] |
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Free Legal Fees |
OR A CONTRIBUTION TOWARDS THE CONVEYANCING COST
More common on products aimed at the remortgage market but a frequent
product ‘enhancement’. To take advantage of the offer the mortgage
applicant will normally need to use a firm of solicitors or licenced
conveyancers nominated by the lender. [TOP] |
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Free Valuation |
OR A REFUND OF THE VALUATION
A free valuation requires no up-front payment from the mortgage
applicant whereas a refund will only be made when and if the mortgage
application completes. Hence an applicant paying for a valuation and
then not proceeding due to, say, a poor valuation, will not have their
valuation fee refunded.
[TOP] |
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Other Benefits |
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A whole range of other benefits can be applied to
mortgages including the significant benefits of no Mortgage Indemnity
Charge and no Early Redemption Charge. [TOP] |
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THINK CAREFULLY BEFORE SECURING
OTHER DEBTS AGAINST YOUR HOUSE. YOUR HOME MAY BE REPOSSESSED IF YOU DO
NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. TYPICAL APR 7.50% VARIABLE.
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