The million pound mortgage
It's not a mortgage that many of us qualify for, but there's plenty we can learn from it.
The private bank Investec has launched a new mortgage offering targeted at high-net worth professionals, the snappily titled £Million Plus mortgage.
And it works in a pretty nifty way. Investec don’t just look at how much the property is worth and the borrower’s regular monthly income in order to make a decision on an off-the-rack mortgage rate. No, with the £Million Plus mortgage, Investec look into the total wealth of the borrower, taking into account things like other assets, deferred shares and investments in order to put together a custom-made mortgage for that borrower and that borrower alone.
It’s come up with this mortgage to meet the demand from people who enjoy significant irregular income, such as people who get a sizeable bonus once a year.
Sadly, not too many of us are going to be spending seven figures on our next property, so the £Million Plus mortgage is not for us. However, it’s hard not to think it would be lovely if all mortgages worked like this, where the lender considers your case as a whole and comes up with a deal that suits you as an individual borrower, rather than just another person in need of credit.
But there are ways you can make your mortgage work for you and give it a slightly more individual touch.
I’m a big advocate of mortgages that boast flexible features – things like overpayments and payment holidays - as they allow you to adapt to changing circumstances.
The majority of mortgages these days offer you the option of overpaying by up to 10% without you being whacked with an early repayment charge, which I’m a big fan of. By overpaying where possible, you pay off the capital element of your debt quicker, which in turn means you pay far less interest in the long run and the whole loan is cleared years in advance.
So if you can afford to pay more than what the lender expects to get from you every month, you can essentially sculpt your mortgage to meet your requirements and get it paid off earlier!
Time for a holiday!
However, it’s the mortgages that offer underpayment and payment holiday features that really allow you to craft your mortgage into something a bit more bespoke for your circumstances.
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With these mortgages, so long as you have overpaid by an allotted amount in the past, you’ll be able to underpay or even take a break from mortgage payments all together for a certain period of time. You’ll need to demonstrate a good reason for taking a payment holiday – the criteria varies from lender to lender, but things like having a baby, a change of employment or a change of job are all reasons that some banks are happy to accept.
But having these features in place really means that you can vary your mortgage to meet your own needs. If you start a family, or you suddenly need to meet a large, unexpected bill, you can do so without also having to worry about meeting the mortgage payments as well.
The mortgage basically works how you need it to work at that time, which is pretty nifty, and the sort of service you’d normally only expect a high roller to enjoy.
Dictating your own payments
However, if you really want to take charge of your own mortgage and make it fit your needs at any particular time, then you should look no further than an offset mortgage.
These work by combining your savings accounts (and in some cases current accounts) with your mortgage, so you end up paying a smaller amount of interest.
Let’s say you have an outstanding mortgage of £150,000 and £20,000 in savings. By using an offset mortgage, you would only have to pay interest on £130,000 of your debt. So on a 25-year mortgage at 5%, that means your repayments would fall from £887 a month to £768, leaving you more than £100 a month better off. Or you can pay a little extra and pay off your mortgage earlier, saving you money in the long run.
Essentially, you dictate how much interest you pay on your mortgage and for how long you want to pay it!
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Obviously offset mortgages work far better if you have a decent amount of cash set aside in savings, but if you do, for my money it’s the best way to use that money – after all, the rate of interest you’d be earning on that cash in a savings account is pretty naff at the moment.
A helping hand
When I bought my house, I knew I wanted a mortgage with flexible features. After all, I knew my wife and I would be starting a family sooner rather than later, so wanted to be in a position to take advantage of a payment holiday should we need it.
However, it can get a bit difficult comparing different lender’s flexible features based on the information on their websites, and trying to wade through the small print to find the criteria for the different flexible features.
That’s where my broker came in. He knew which lenders would not only want my business, but would also be most sympathetic should I want to utilise the flexible features that came with my mortgage.
He was invaluable, and that’s just another reason why it makes sense to make use of a broker when arranging a mortgage. To have a chat with one of our mortgage team, head over to our innovative mortgage centre where you can pick their brains via email, instant messenger or over the phone, or if you prefer you can search the market yourself to find the right mortgage for you.
At lovemoney.com, you can research all the best deals yourself using our online mortgage service, or speak directly to a whole-of-market, fee-free lovemoney.com broker. Call 0800 804 8045 or email email@example.com for more help.
This article aims to give information, not advice. Always do your own research and/or seek out advice from an FSA-regulated broker (such as one of our brokers here at lovemoney.com), before acting on anything contained in this article.
Finally, we tend to only give the initial rate of a deal in our articles, but any deal which lasts for a shorter period than your mortgage term may revert to the lender's standard variable rate or a tracker rate when the deal ends. Before you take out a deal, you should always try to find out from your lender what its standard variable rate is and how it will be determined in the future. Make sure you take all this information into account when comparing different deals.
Your home or property may be repossessed if you do not keep up repayments on your mortgage.