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.
Tuesday, May 26, 2009
Surviving The Mortgage Meltdown (by Dennis Estrada)
The housing market has severely weakened. There are many subprime mortgage lenders who are going out of business. To survive, some mortgage lenders lay off employees, cut down on business expenses, and closed down several mortgage centers. Unfortunately, many subprime lenders did not act fast enough.
Last year, the subprime mortgage loans accounted for twenty percent of the mortgage market. When the home prices were high, the mortgage lenders entice the borrowers with exotic mortgage like interest only mortgage, easy mortgage loan application, low introductory interest rate, piggyback second mortgage, and adjustable rate mortgage.
The subprime mortgage lenders had put the borrowers in a bigger house than the borrowers can afford. Interest rate goes high enough to cause panic, because the mortgage payments get higher as well. Suddenly, the borrowers were not able to afford to pay off the mortgage. Here are a few things to survive the mortgage meltdown.
Stay on top of the mortgage interest rate
At the end of the introductory low interest rate period, the interest rate will increase. It is important to be realistic on your financial status. In case of higher interest rate, the income of the borrower must be enough to cover the mortgage payment. At the same time, the borrower will be ready for the higher mortgage payment.
Watch closely on the trend of interest rate
Especially, the borrower uses an exotic mortgage like adjustable rate mortgage. Many borrowers do not fully understand how the adjustable rate mortgage works. With the adjustable rate mortgage, it is possible for negative amortization. Negative amortization happens when the mortgage payment does not cover the interest. Thereby, the mortgage payment does not pay off the mortgage.
Know the different mortgage refinancing options
The mortgage refinancing is a way to switch to another mortgage. Usually, the borrower switches on the drop of interest rate or at the end of the mortgage term. There are many mortgage refinancing options. The mortgage brokers will be able to direct the borrower for the best option. A drop of interest rate happens all the time. So, the borrower might be able to take advantage of the drop of interest rate.
Set aside funds for the emergency fund
It is a good idea for the borrower to set an emergency fund. The emergency fund is a set of funds for living expenses in case of loss of income. The general rule is three to six months of emergency fund. The idea is to buy time to get back on the good foot.
Consider to rent out for extra source of income
If there is an extra room, the borrower can rent out the extra room for extra source of income. The rent income may be able to cover the spike on mortgage payment. For example, some homeowners convert the garage into an extra accommodation. That would be perfect to rent out. Since the homeowners increase the ability for the property to create income, the home value appreciates as well.
Cover the loss of income with mortgage insurance
The loss of income is one of the reasons to miss the mortgage payments. The accidents, illnesses, or deaths cause loss of income on the family. It may be a stretch to repay the mortgage. The mortgage insurance will protect the family in case of accidents, illnesses, or deaths.
Realistic personal budget
The borrowers know their personal worth. Like anybody, the borrowers have several financial obligations. Discipline is the key to get back on the right foot. The borrower may be able to cut off unnecessary expenses. Then, the borrower will set a realistic personal budget to satisfy the financial obligations.
Dennis Estrada is a webmaster of mortgage calculators, mortgage meltdown, and mortgage refinancing website that gives access to many resources, and calculators for mortgage.
Last year, the subprime mortgage loans accounted for twenty percent of the mortgage market. When the home prices were high, the mortgage lenders entice the borrowers with exotic mortgage like interest only mortgage, easy mortgage loan application, low introductory interest rate, piggyback second mortgage, and adjustable rate mortgage.
The subprime mortgage lenders had put the borrowers in a bigger house than the borrowers can afford. Interest rate goes high enough to cause panic, because the mortgage payments get higher as well. Suddenly, the borrowers were not able to afford to pay off the mortgage. Here are a few things to survive the mortgage meltdown.
Stay on top of the mortgage interest rate
At the end of the introductory low interest rate period, the interest rate will increase. It is important to be realistic on your financial status. In case of higher interest rate, the income of the borrower must be enough to cover the mortgage payment. At the same time, the borrower will be ready for the higher mortgage payment.
Watch closely on the trend of interest rate
Especially, the borrower uses an exotic mortgage like adjustable rate mortgage. Many borrowers do not fully understand how the adjustable rate mortgage works. With the adjustable rate mortgage, it is possible for negative amortization. Negative amortization happens when the mortgage payment does not cover the interest. Thereby, the mortgage payment does not pay off the mortgage.
Know the different mortgage refinancing options
The mortgage refinancing is a way to switch to another mortgage. Usually, the borrower switches on the drop of interest rate or at the end of the mortgage term. There are many mortgage refinancing options. The mortgage brokers will be able to direct the borrower for the best option. A drop of interest rate happens all the time. So, the borrower might be able to take advantage of the drop of interest rate.
Set aside funds for the emergency fund
It is a good idea for the borrower to set an emergency fund. The emergency fund is a set of funds for living expenses in case of loss of income. The general rule is three to six months of emergency fund. The idea is to buy time to get back on the good foot.
Consider to rent out for extra source of income
If there is an extra room, the borrower can rent out the extra room for extra source of income. The rent income may be able to cover the spike on mortgage payment. For example, some homeowners convert the garage into an extra accommodation. That would be perfect to rent out. Since the homeowners increase the ability for the property to create income, the home value appreciates as well.
Cover the loss of income with mortgage insurance
The loss of income is one of the reasons to miss the mortgage payments. The accidents, illnesses, or deaths cause loss of income on the family. It may be a stretch to repay the mortgage. The mortgage insurance will protect the family in case of accidents, illnesses, or deaths.
Realistic personal budget
The borrowers know their personal worth. Like anybody, the borrowers have several financial obligations. Discipline is the key to get back on the right foot. The borrower may be able to cut off unnecessary expenses. Then, the borrower will set a realistic personal budget to satisfy the financial obligations.
Dennis Estrada is a webmaster of mortgage calculators, mortgage meltdown, and mortgage refinancing website that gives access to many resources, and calculators for mortgage.
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