Guide to Flexible Mortgages
Outlined below is a useful guide to flexible mortgages. Flexible mortgages are also known as Australian Mortgages because they usually feature something which is common in Australia - interest recalculation on a daily basis.
Daily interest rate calculation means that the amount you owe falls each month as a little more capital is paid off with each mortgage payment. Most flexible mortgages now offer daily calculation of interest, so changes to the outstanding balance are taken into account immediately.
The flexible mortgage was originally designed to help homeowners take a more pro-active role in managing their debt. Since their inception they have increased dramatically in popularity.
Flexible mortgages allow you to tailor your mortgage to suit your lifestyle. A flexible mortgage allows you to make additional or lump sum payments in excess of your scheduled amount, enabling you to pay off your mortgage early. By reducing the capital amount of your mortgage in this way, you are also reducing your monthly interest payments. You may take this money back at any stage or use it to take a repayment "holiday".
A flexible mortgage typically allows you to increase and reduce payments. This flexibility allows you to match your income patterns to your out-goings. If you repay extra each month you can reduce you mortgage balance and interest charged resulting in substantial savings being made.
Flexible mortgages are loans which allow you to increase or reduce the size of your repayments within certain limits. This may help you cope with changes in your income or spending, and reduce your outstanding commitments without penalty.
Flexible mortgages offer the safety net of being able to take occasional payment holidays when financial times get tough. But the payment holiday safeguards lenders put in place to ensure borrowers are generally prevented from falling into arrears or negative equity vary considerably from lender to lender. So it is vital to check the terms and conditions of each loan. A large number of lenders allow payment holidays where the borrower is drawing back on a reserve limit agreed at the time of the mortgage application.
Many self-employed people whose income varies from one month to the next find these products helpful. They can make overpayments when earnings are at the annual peak and cut payments when earnings fall again. Some flexible mortgages allow you to withdraw sums you have overpaid into your mortgage account for emergencies.
Borrowers will usually have to build up a reserve through overpayments before being allowed to lower or miss payments. The benefit with a flexible mortgage is that many lenders offer rates that are calculated on a daily basis. The advantage to this type of mortgage is that even by overpaying the mortgage by a small amount on a regular basis, it can reduce your mortgage term by years
Some flexible mortgages operate as both a current account and a mortgage account. The advantage of a flexible mortgage is that all money is controlled within one account and savings can be used to offset the debt. With flexible mortgages interest is only paid on the balance outstanding at the end of each day, leading to less overall interest payments.
Most flexible mortgages follow the lender's standard variable rate, although a few lenders offer short-term discounts. The interest charged on a flexible mortgage is usually high compared to a short-term special offer rate, such as a fixed rate or discount.
To get the maximum benefit from a flexible mortgage you will need to actively use the flexible elements of the loan, otherwise there is little point in taking out this type of mortgage.
Your home is used as collateral for the flexible mortgage, so if you fail to make repayments on the Flexible Mortgage the lender can take procession of your home and resell it to cover the debt.
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