When mortgages were first introduced, there was very little choice for the home-buyer. Mortgage borrowers had a regular, fixed salary and worked to much more standard hours than today. Nowadays, more and more people work to 'flexible' hours or work from home; career breaks too are common and the average salary now consists of factors other than just hours worked, such as profit-related pay, maternity and paternity payments, overtime and performance bonuses. As a result, a person's salary can fluctuate greatly from month-to-month.
Because of the hectic and ever-changing nature of today's working environment, many home-owners demand a greater flexibility from their mortgage products, and lenders have been quick to introduce several new products into the mortgage market to accommodate these demands. One of the most popular mortgage products to enter the market in recent years is the flexible lifestyle mortgage, which offers a host of benefits to consumers looking to purchase a property of their own.
The flexible lifestyle mortgage was introduced into the UK from Australia in the mid-1990s, and they are still sometimes referred to as 'Aussie' mortgages. This type of mortgage allows you to make extra repayments towards your mortgage when you have extra money available, but also allows you to reduce or even skip payments when necessary. In order for a mortgage to be considered as 'flexible', it should have the option to settle early without penalty charges, and to take payment holidays or make overpayments without incurring extra charges. Flexible mortgages should also offer a drawdown facility which allows you to effectively re-mortgage and release cash without the need for additional paperwork.
Flexible mortgages should also offer interest on a daily or monthly basis, as prior to the arrival of flexible mortgages in the UK, lenders would charge interest on an annual basis – meaning that borrowers who made over-payments on their mortgages were not receiving any benefits straight away, as it could take up to a year before the capital was reduced by the over-payment. On a mortgage where interest is calculated on a daily basis, any overpayment reduces the mortgage balance immediately, so the borrower is charged less interest from the next day. This means that a borrower who pays their mortgage on a weekly basis and can make an over-payment every so often can shorten the length of the term of the mortgage and could save thousands of pounds!
If your flexible mortgage has a drawdown facility, then another advantage is ability to use it as a form of savings account. This is a much more cost-effective way of saving for home improvements or arranging a personal loan, as while your overpayments are in the mortgage account, the interest you pay is calculated on a smaller capital amount. A drawdown facility allows you to take any overpayments back, but you have still saved yourself from paying a substantial amount of interest during the time your money was in the mortgage.
The downside to flexible mortgages though are that they normally don't come with the most competitive interest rates, so you need to look at the long-term picture and compare them with other types of mortgage to find out if a flexible mortgage would offer the best deal. Furthermore, in order to take payment holidays or make an under-payment in a flexible mortgage, you would need to compensate for any shortfall through over-payments in order to stay within the original payment schedule.
A flexible mortgage could be the answer to financing a home purchase in today's hectic lifestyle, but if you are looking to purchase a property in the future, make sure you explore all the options available to you. There are many comparison websites, such as Moneynet, which can check the mortgage market for you and help you to find the most suitable product and the best deal available for your circumstances.
Andrew Regan is an online, freelance journalist.