Flexible mortgages

Ø 1) What are advantages and disadvantages of having a mortgage?

Ø 2) Read the heading and the words from the article and say what it is about: to adjust, to borrow, debt, equity, flexible, income increase, interest rate, liability, mortgage, penalty, to suit.

Flexible mortgages can be adapted to suit home-owners’ varying financial needs.

A mortgage which adjusts to the ebbs and flows of a borrower’s financial situation could become a popular option with households who experience variations in income levels.

With a flexible mortgage, you can link many of your debts under one roof with the advantage of interest rates of between 5% and 7%. Having all your borrowings together has obvious management advantages.

If the equity in a house is higher than the value of a current mortgage and the applicant can prove that he or she is capable of meeting the repayments, remortgaging can allow you to set by a sum which can be drawn down gradually for home improvements.

There may, of course, be a tax liability if the extra money borrowed is used for purposes other than the house or garden. Also, since the borrowings are over a much longer period, the eventual repayment sum will be considerably higher than with a term loan. And it is important not to forget to change your life cover to suit the altered circumstances.

A big attraction is the fact that a flexible mortgage can be adapted to suit changes in a person’s financial circumstances. The facility to take a sabbatical on repayments can be invaluable when finances are at low ebb. Many incomes these days are so irregular that six-monthly or even annual repayments may suit better – and believe it or not, this can be arranged. You can even opt for a dual rate, part-fixed and part-flexible, so that you are safeguarded whatever way interest rates move.

So why are flexible mortgages such a closely-guarded secret? “We don’t broadcast all we can do because most people just want simplicity and a fast response, ” said Wyndham Williams, Allied Irish Bank (AIB) Head of Mortgages.

“We allow any frequency of repayment, yearly, seasonal – anything to suit a customer’s cash flow. We can also allow you to take a six to 12 months break in repayments or arrange a reduction in repayments.”

AIB also facilitates a “top-up” of an existing mortgage, although Williams was quick to point out that the Revenue Commissioners may ask for proof that the money was used for a backyard swimming pool and not for a brand new Lambordhini.

Independent mortgage consultant Shane Richardson of National Mortgage Services says that once the value is in your home, there is nothing to stop you borrowing extra to help clear off all your loans, choosing whatever rate you prefer. “What this is giving you is cash flow – using the equity in your property to allow you to live, ” said Richardson. “Home improvers may want to pay electricians, plumbers and plasterers on a piecemeal basis, with part of the money upfront. Remortgaging can facilitate this.”

On a cautionary note, Richardson stressed the importance of remaining in a careful control of your borrowings. “We are concerned that if a customer, who is a bad manager, clears all their debts by extending their mortgage, they may quickly get into the same situation.” We say, “Please don’t go off and borrow again because they are using up a vast chunk of their equity in the process.”

Bank of Ireland’s flexible mortgages offer a number of options. They will pay the first-time buyer’s grant up-front for a customer and claim it back from the government. They have a split interest rate option where the customer can choose to divide his/her mortgage rate between fixed and variable. From 5 to 30-year terms can be arranged for borrowings up to an age limit of 75. Customers can choose to repay for 10 months of the year if it suits, taking Christmas and the summer months off.

Most banks and building societies offer breaks in repayments of up to three months over the term of the loan – an attractive option for those taking maternity leave or a short career break for study.

You can arrange for your mortgage to be index-linked, with repayments increasing by 2% or 3% each year to keep pace with wage rises and inflation. In some cases, up to 10% of a lump sum can be used to reduce the loan each year without incurring a penalty.

The secret of managing a flexible mortgage is to look on it as a loan which will tide you over a bad period, but ultimately it should reduce interest penalties when the good times return.

Ø 3) Answer the questions:

a When are flexible mortgages especially useful?

b Why aren’t flexible mortgages used widely?

c What causes concern on the part of a bank?

d What does Bank of Ireland offer?

Ø 4) Make up an outline of the text in writing.