Most of us will pay our mortgage each month and never think of how we can change the payments to take advantage of the flexibility that most mortgages offer nowadays. A lot of mortgages will let you overpay, underpay or even stop paying for a little while in some circumstances.
Offset or flexible mortgages allow the borrower to repay any amount of money off their mortgage at any time, without any charge or penalty. If your bank asked you if this sounded like the type of mortgage which would suit you, a lot of people would say yes, because you would be thinking about all the money you could save. The interest rate and the fees you have to pay to get this type of mortgage might be an afterthought, even though they are probably the most, if not, only thing that matters. If somebody told you that you could get a mortgage which had an interest rate which was 1% less, and for every £100,000 you owed you would save around £83 per month, then maybe you wouldn’t be so keen on the idea of paying extra for the offset facility than you were first offered by your bank. In fact because most mortgages now will let you make overpayments of upto 10% of your outstanding balance per year, there isn’t much point in getting an offset mortgage at all, unless you’re lucky enough to be getting thousands of pounds now and then which you can use to pay off large sums frequently.
Some mortgages will not only let you make overpayments of upto 10% per year, but they will also let you take a payment holiday if you have already overpaid in that year. If you have the financial discipline to do so, you can make this work to your advantage and create a mortgage which you only pay for 10 months of the year, so that when Christmas comes around you don’t have to be running up bills on credit cards. If you make enough overpayments from January to October, then you may be able to miss out on November and December’s payments to help out during the festive season, and you will save a little money on interest whilst doing so. You may even find that you have enough money to carry on paying come November, which would allow you to knock several months off your mortgage term.
Apart from the obvious things such as fees and interest rates, there are many other things that make a mortgage deal more attractive. Some things are worthwhile having, and some are just used as a sales tactic to draw you in. If you are unsure of how the different features of mortgages work and how they may benefit you, it is worth contacting an Independent Financial Adviser who specialises in mortgages to provide you with impartial advice on what is right for you. Kieron Bassett Financial Services has two Independent Financial Advisers. Contact us on (01524) 832057, via e-mail, info@kieronbassett.com, or log onto www.kieronbassett.com.
Jason Hinde CertPFS
21st March 2011
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