by Mark Johnston
The current economic climate has brought great uncertainly, both in the job market and in the UK economy as a whole. Many people are worried about the stability of their future income and potential Bank of England base rate increases. This is causing many to delay getting onto the UK property market. This in turn is having a negative effect of house prices and fluidity in the market.
Many lenders are responding to this by providing much more flexibility in how home loans can be repaid. Flexible mortgages allow borrowers some deviation from their payment plan. This can include underpayment when times are hard and over payment when borrowers have additional income. Other mortgage providers are offering payment holidays and a mixture of variable and fixed rates on the same mortgage.
Many lenders who provide flexible mortgages allow borrowers to make underpayments once overpayments have been made. This could mean that if you have been overpaying your mortgage by £200 per month, you may be able to pay £200 less in future months or even miss whole payments; up to the maximum of the overpayments that you have made.
For example, if your normal monthly payment is £500 and you have been making an over payment of £200 per month you would have been paying £700 in total. If you have done this over 6 months your overpayment would be £200 x 6 which is £1200. This would allow you to underpay for a while until the £1200 overpayment was reduced to zero.
Many borrowers are able to make overpayments. This is a much more flexible way of paying your mortgage off earlier than reducing the overall term. If you were to change your mortgage term from the standard 25 years to 22 years your mortgage payment would increase and you would pay your mortgage off 3 years early. The problem with doing this is that you are locked into paying the increased amount even when times are hard. Making overpayments gives you the flexibility without making a commitment.
Many more lenders are allowing borrowers to take payment holidays. This can sometimes be a whole year to allow for say starting a family or going away travelling. Other providers allow a couple of months every year as long as enough overpayments have been made. Several lenders allow payment holidays without making overpayments; instead the lender increases the overall rate of interest later on in the loan.
In order to help first time buyers; some lenders allow borrowers to defer paying back capital at the start of the mortgage. The borrowers only pay interest back at first and then pay a slightly higher monthly payment later on in the loan.
Mortgagerates.org.uk have also seen some lenders offering ‘borrow back’ deals. This is where borrowers are allowed to take back over payments instead of taking out additional loans when extra cash is needed for a say a new car or some home improvements. In order to do this borrowers, would need to build up a reserve of cash but this gives a great degree of flexibility and security and can save money in the long term.
Whatever your borrowing needs, the UK market is very flexible and competitive at the moment. There are some great deals and options available so keep an eye on mortgagerates.org.uk for the most up to date mortgage news and deals.
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