Flexible Loans and Mortgages with give and take
Have you heard about the new flexible mortgages? If you have savings as well as a mortgage, you can use one to help out the other.
There's a lot of talk at present about new-style mortgages and lots of interest in the innovative flexible ones. These mortgages originated in Australia but are now offered by several UK lenders. The flexibility to pay off your loan more quickly or take a short rest from your mortgage occasionally makes the product very adaptable. There are basically two types of flexible mortgages, offset and current account.
With an offset mortgage, your savings and mortgage are combined. Whereas with conventional loans and savings accounts you pay interest on money borrowed and receive interest on money saved, with an offset loan this is not the case. If you are a taxpayer, tax is automatically taken from the interest you receive on your savings at the rate of 20% and if you're a higher rate taxpayer then the excess tax is deducted via your PAYE. If you have an offset account, your savings and mortgage are linked as two parts of one account. No interest is paid on your savings, so there is no tax deducted; therefore your mortgage is reduced by the amount of interest that you would normally have paid on your savings.
The way it works is simple. Imagine that you have an offset account and have £10,000 in the "savings department" and an interest only mortgage of £100,000 in the "mortgage department". The money in the savings part of the account earns no interest. When working out the interest on your (interest only) loan, the balanced is offset by your savings. Therefore you pay interest on £90.000, instead of the full £100,000 which you have borrowed.
You can choose to take extra sums to fund things like home improvements and repairs, or even the odd holiday. These will be at the mortgage rate, which would be lower than taking out a personal loan or using your credit card. The terms of these mortgages vary, but generally you are given a reserve figure, which can be higher than the original loan. As an example of this, your property value could be £200,000 and your loan £120,000. Your reserve limit could be as high as £160,000, leaving you with £40,000 worth of credit in hand to spend as you choose. Remember though that any money borrowed is secured by your property.