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One of the many advantages
of having a good credit record is the flexibility that lenders
are willing to show with regard to the options they offer
in their mortgages. A so called flexible mortgage is one that
features several options and/or benefits for a borrower with
a solid credit history. The better your credit record, and
the more financially affluent you are, the more flexible the
lender will be.
Better Interest Rates
The main advantage of a flexible
deal, however, is that interest rates are evaluated on a short
term basis. As opposed to being calculated annually, as they
are in a standard set-up, many of these deals feature interest
rates that are recalculated every month. This means that any
overpayment that is made will have immediate effect in reducing
the balance. With a standard deal, the benefit of making overpayments
may not be seen until as much as a year afterwards.
Current Account Mortgages
The borrower’s current
bank account may also play a part in the payable interest
rate of a flexible deal; the interest payable on the outstanding
balance is dependent on the current financial account of the
borrower e.g. if the borrower has a balance of £60,000,
and a current account balance of £3000, he or she will
only owe interest on a balance of £57,000. Savings accounts,
credit cards and personal loans may also be linked to this
option.
Cash Back Options
This is used by uk lenders
as an incentive; they offer a potential borrower a lump cash
sum upon issue. This lump sum is usually dependent on the
size of the mortgage, and varies from lender to lender. Borrowers
will usually be “locked-in” for anywhere from
5 to 7 years where a substantial cash back amount has been
paid.
Terms and Conditions
Lenders will sometimes apply
what is known as an early redemption charge to protect their
own interests from borrowers repaying quickly. It is usually
a number of years after issue before the lender sees any profit.
The period during which an early redemption charge applies
will vary, and the charge itself may be quite significant
e.g. 6 months’ interest. Restrictions like this are
common, but some use the lack of these restrictions as a selling
point; this means that the borrower is free to repay early
if they wish to. Some deals may feature an early redemption
charge for a fixed period only; this might be the duration
for which the interest rate is fixed, capped, or discounted.
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