Flexible loans follow flexible lifestyles

Clare Arthur looks at mortgages that fit changing work patterns

Forget your spouse and children, the longest financial commitment most people make is to their lender. While lots of marriages end after a few years and children fly the nest, the traditional mortgage lasts 25 years.

All three commitments are likely to cost you far more than you expected. Furthermore, many people find that their jobs are no longer as predictable. Work patterns are changing, thousands have been made redundant, many more find themselves signing up for short-term contracts or setting up their own businesses. A steady flow of income is no longer guaranteed.

To help people cope, several mortgage lenders have launched a new type of home loan, the flexible mortgage. Unlike the traditional mortgage, which requires a certain level of payment every month, payments can be adapted to meet changing circumstances. If you are flush with cash, you can overpay your loan. If money is tight, you can arrange to reduce or stop payments for a while. Alternatively you can choose to make 10 mortgage payments a year, leaving two months free to spend any extra cash as you wish.

Ronnie Macaulay, a senior manager for Bank of Scotland Mortgages Direct, says its experience of offering flexible loans has been that low interest rates have encouraged borrowers to overpay. Regular overpayment can make a big difference both to the length of the mortgage and the amount of interest you have to pay. A pounds 50,000 repayment mortgage would cost pounds 331.01 a month to repay over 25 years, assuming that interest rates remain at 6.99 per cent. But by overpaying your repayment loan by pounds 100 a month, you reduce the term to 15 years and one month, and save pounds 23,178.

Bank of Scotland Mortgages Direct will even allow you to draw out cash from your Personal Choice mortgage account by writing cheques.

Borrowing this way to buy a car or pay school fees is a lot cheaper than taking out a conventional unsecured bank loan. A pounds 5,000 unsecured loan from the Bank of Scotland would cost pounds 172.40 a month over three years. But it would cost pounds 156.69 in overpayments every month to return the pounds 5,000 in equity to a flexible mortgage over the same period.

However Ian Darby, of John Charcol, an independent mortgage broker, sounds a note of caution about flexible mortgages. The interest rates on most are at the lender's standard variable rate and borrowers normally do not benefit from discounts, fixed rates or cashbacks.

He says: "We are fully aware of the advantages of repaying a mortgage early, and we think the time of flexible mortgages will come, but not until they are priced as competitively as other mortgages. Very few customers are interested in them because they do not offer cashbacks and discounts."

Market Harborough Building Society is the first lender to offer its flexible loan, Mortgage-by-Design, with a cashback offer equivalent to 3 per cent of the loan's value. The loan has an arrangement fee of pounds 295 and early redemption penalties.

Before you borrow

The number of options offered by flexible loans make them difficult to compare:

q Ask an independent mortgage broker for advice. They should know all the schemes available on the market and be able to work out which is the best for you.

q Check whether your existing loan will enable you to overpay. Many lenders allow borrowers to make lump sum repayments of capital, and an increasing number can handle monthly overpayments, although there can be catches.

q Watch out for charges. Some flexible mortgages levy hefty arrangement and early redemption fees.

q Do ask for help when trying to work out the consequences of under-paying or stopping monthly mortgage payments altogether.

News
Russia Today’s new UK channel began broadcasting yesterday. Discussions so far have included why Britons see Russia as ‘the bad guy’
tv

New UK station Russia Today gives a very bizarre view of Britain

News
John Moore inspired this Coca Cola Christmas advert
people

News
people

Top Gear presenter is no stranger to foot-in-mouth controversy

Arts and Entertainment
Imelda Staunton as Dolores Umbridge in the Harry Potter films
books

New essay by JK Rowling went live on Pottermore site this morning

PROMOTED VIDEO
Sport
A Rutherford Raiders shirt with the PornHub sponsorship
football

Arts and Entertainment
Charlie Sheen said he would
tv

Charlie Sheen could be set to revive his role as a hedonistic womaniser

Arts and Entertainment
Daniel Radcliffe gives a strong performance in Horns
film

Review: Alexandre Aja's film is a Twin Peaks-style mystery

News
Apple CEO Timothy Cook
people
News
i100
News
ebooksAn unforgettable anthology of contemporary reportage
Life and Style
Jamie Oliver’s version of Jollof rice led thousands of people to post angry comments on his website
food + drink
Arts and Entertainment
Vividly drawn: Timothy Spall in Mike Leigh’s ‘Mr Turner’
film

Review: Mike Leigh's biopic is a rambling, rich character study

Arts and Entertainment
glastonbury
Arts and Entertainment
Shelley Duvall stars in Stanley Kubrick's The Shining
film
Arts and Entertainment
Shock of the news: Jake Gyllenhaal in ‘Nightcrawler’
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

The benefits of Recruitment at SThree...

£18000 - £23000 per annum + Comission: SThree: SThree, International Recruitme...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £35K: SThree: We consistently strive to be the...

Finance Assistant - Part time - 9 month FTC

£20000 - £23250 Per Annum pro rata: Clearwater People Solutions Ltd: Pro rata ...

Marketing Manager

£40 - 48k + Benefits: Guru Careers: We are seeking a Marketing Manager to join...

Day In a Page

The drugs revolution starts now as MPs agree its high time for change

The drugs revolution starts now as MPs agree its high time for change

Commons debate highlights growing cross-party consensus on softening UK drugs legislation, unchanged for 43 years
The camera is turned on tabloid editors in Richard Peppiatt's 'One Rogue Reporter'

Gotcha! The camera is turned on tabloid editors

Hugh Grant says Richard Peppiatt's 'One Rogue Reporter' documentary will highlight issues raised by Leveson
Fall of the Berlin Wall: It was thanks to Mikhail Gorbachev that this symbol of division fell

Fall of the Berlin Wall

It was thanks to Gorbachev that this symbol of division fell
Halloween 2014: What makes Ouija boards, demon dolls, and evil clowns so frightening?

What makes ouija boards and demon dolls scary?

Ouija boards, demon dolls, evil children and clowns are all classic tropes of horror, and this year’s Halloween releases feature them all. What makes them so frightening, decade after decade?
A safari in modern Britain: Rose Rouse reveals how her four-year tour of Harlesden taught her as much about the UK as it did about NW10

Rose Rouse's safari in modern Britain

Rouse decided to walk and talk with as many different people as possible in her neighbourhood of Harlesden and her experiences have been published in a new book
Welcome to my world of no smell and odd tastes: How a bike accident left one woman living with unwanted food mash-ups

'My world of no smell and odd tastes'

A head injury from a bicycle accident had the surprising effect of robbing Nell Frizzell of two of her senses

Matt Parker is proud of his square roots

The "stand-up mathematician" is using comedy nights to preach maths to big audiences
Paul Scholes column: Beating Manchester City is vital part of life at Manchester United. This is first major test for Luke Shaw, Angel Di Maria and Radamel Falcao – it’s not a game to lose

Paul Scholes column

Beating City is vital part of life at United. This is first major test for Shaw, Di Maria and Falcao – it’s not a game to lose
Frank Warren: Call me an old git, but I just can't see that there's a place for women’s boxing

Frank Warren column

Call me an old git, but I just can't see that there's a place for women’s boxing
Adrian Heath interview: Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room

Adrian Heath's American dream...

Former Everton striker prepares his Orlando City side for the MLS - and having Kaka in the dressing room
Simon Hart: Manchester City will rise again but they need to change their attitude

Manchester City will rise again but they need to change their attitude

Manuel Pellegrini’s side are too good to fail and derby allows them to start again, says Simon Hart
Isis in Syria: A general reveals the lack of communication with the US - and his country's awkward relationship with their allies-by-default

A Syrian general speaks

A senior officer of Bashar al-Assad’s regime talks to Robert Fisk about his army’s brutal struggle with Isis, in a dirty war whose challenges include widespread atrocities
‘A bit of a shock...’ Cambridge economist with Glasgow roots becomes Zambia’s acting President

‘A bit of a shock...’ Economist with Glasgow roots becomes Zambia’s acting President

Guy Scott's predecessor, Michael Sata, died in a London hospital this week after a lengthy illness
Fall of the Berlin Wall: History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War

Fall of the Berlin Wall

History catches up with Erich Honecker - the East German leader who praised the Iron Curtain and claimed it prevented a Third World War
How to turn your mobile phone into easy money

Turn your mobile phone into easy money

There are 90 million unused mobiles in the UK, which would be worth £7bn if we cashed them in, says David Crookes