Flexible mortgages need flexible mortgage advisors. Should you overpay, underpay, offset or take a mortgage holiday?
Does the idea of paying off your mortgage early or reducing payments when money is tight sound attractive to you. We think it does and GHL Direct can help find the right flexible mortgage for you. Our mortgage team is more than happy to help you find the right flexible mortgage to suit your needs. And just like the mortgage, we are very flexible and offer appointments over the phone, via video call or face to face from 08:00 - 20:00.
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The importance of affordability
For most of us, buying a home will be the biggest financial decision we’ll ever make.
When finding a mortgage product that will meet your requirements, both your income and outgoings will play a part.
The EU Mortgage Credit Directive of 2015 introduced stricter lending criteria, which led to mortgage lenders having to take greater steps to check affordability – including on remortgages.
These rules require your lender to check you can afford your repayments, both now and in the future. To do this, they will need information about your income and outgoings. You will have to inform them if you expect your income and outgoings to change in a way that means you’ll have less to spend on your mortgage repayments. You will also need to provide your mortgage lender with evidence of your income.
Before you decide on a flexible mortgage, you need to calculate how much or how little you can safely pay each month and which is the most appropriate for your needs.
A flexible mortgage is a type of mortgage that may allow you to make overpayments, underpayments and take payment holidays to suit your financial situation at any given time. Maybe you have extra cash available, perhaps you’ve had an unexpected bill or simply need to take a break. Our mortgage advisors will explain all of this if you think its right for you.
You can reduce the total value of your mortgage by paying more than you need to each month or year. This can save you money and enable you to pay off your mortgage earlier. Many lenders allow you to pay more than the mortgage each year by 10% while others give you the option to overpay as much as you like without charge. As an example if your mortgage is £100,000 you could pay up to £10,000 per year to reduce the overall cost of your mortgage.
There are some some lenders who permit you to make underpayments if you have already overpaid previously. This is beneficial if your life circumstances change or if your monthly payments need to be reduced temporarily. You should consider this option carefully and only underpay if your lender is aware of your situation and agrees.
With flexible mortgages, a payment holiday refers to a period of time (usually up to three months) during which you do not pay the lenders mortgage payments. During the holiday period, the interest you should have paid over the period is added to your mortgage, so your total capital balance at the end will be larger. Again, consider this option carefully and always speak to the lender in advance if this is something you think you’ll need to do.,
By using your savings as collateral (up to 100% coverage), offset mortgages allow you to offset the interest you pay on the mortgage. This is beneficial since most savings accounts do not earn much interest at the moment due to low interest rates. The lower the interest you pay, the more efficiently you will be able to repay the capital, which will result in the overall mortgage cost being reduced significantly by reducing your mortgage term.
The two most common ways of repaying your mortgage are capital repayment and interest only.
On a repayment mortgage, your monthly payments will partly go towards repaying the interest accrued on the money you’ve borrowed and partly towards repaying the capital sum (i.e. the amount you borrowed).
The benefit of capital repayment is that you’ll be able to see your outstanding mortgage reducing each year (albeit very slowly in the early years), and you are also guaranteed that your debt will be repaid at the end of the mortgage term, as long as you keep up your payments. On a capital repayment mortgage, the shorter the term you pay your mortgage over the bigger your monthly payments will be.
By having a longer term, you may benefit from a lower monthly payment, but you will also pay more interest to the lender over the mortgage term.
Capital repayment is the most common way of repaying your mortgage.
Interest Only Mortgage
For an interest only mortgage, your monthly payments will only cover the interest on your mortgage balance. The capital you owe (i.e. the amount you borrowed) will not go down and you will need to repay this in full at the end of your mortgage term. This means you will need to make a separate investment or combination of investments to generate the capital required, and you will also need to prove that you can afford to do this.
You should bear in mind that the value of investments can go down as well as up and you may not get back the original amount invested. For an interest only mortgage, the lender will need to see your plan for repaying the loan when the interest only period ends. If you fail to generate enough to repay your mortgage by the end of the mortgage term, you may be forced to sell your property.
With an interest only mortgage, you must be able to demonstrate how you will repay the capital sum at the end of the term.
It’s easy to underestimate the mortgage costs involved when buying a property.
Lenders may ask you to pay a valuation fee. The type of valuation you choose will depend on factors such as the age and condition of the property.
These are the costs your lender will charge you for arranging your mortgage. Some lenders will allow the fee to be added on to your mortgage, but this means you will be charged interest on it over the mortgage term.
The fees charged by a solicitor will include their conveyancing fee (i.e. for the transfer of land ownership), as well as charges for legal registrations and other miscellaneous costs (known as disbursements) such as local search fees and Land Registry fees. Some lenders may offer to finance some or all of your legal costs as an incentive.
If the amount you wish to borrow is greater than a specified proportion of the property’s value (typically 75%), you may incur a higher lending charge.
Lenders may charge an ERC if you make an overpayment in excess of any stated limit, if the loan is repaid early or if you remortgage during the early repayment period. This can amount to a significant cost, so you should always check the early repayment terms in the offer letter from your lender.
Lenders may charge a fee to release the deeds of a mortgaged property to you or a new lender.
Before we get started, we will explain how we will be paid for arranging your mortgage if it all.
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Your home or property may be repossessed if you do not keep up repayments on your mortgage.