The last few years have seen a watershed in the thinking of mortgage lenders: flexibility is now the buzz word. Yet, only five years ago asking for a repayment holiday could have meant approaching your branch manager with a good excuse.
AIB, for example, will allow borrowers to make weekly, fortnightly, four-weekly or monthly payments. The most popular of these are, of course, weekly and monthly. Twice monthly, where a couple have different salary dates, is common.
It is also possible to make the standard 12 payments a year or as few as one. Most people still make 12, but more are taking a so-called payments holiday at Christmas, perhaps not making any payments in December or January. This usually means making the 12 payments over 10 months: if the monthly payment over 12 months was £1,000 a month, the new payments over 10 months would be £1,200.
Other options are August and September breaks for family holiday and school fees payments. Self-employed people often make seasonal payments on the same basis. However, few lenders allow the additional payments to be put on to the end of the loan. They say this is not economic, and saddles people with debt for longer.
Another option is "bullet payments": in this instance, a borrower may know that a specific lump sum is coming, say, from a life assurance policy. This can then be factored into the mortgage repayments - but very few people avail of this.
Bank of Ireland also has very flexible options and its package is particularly good for first-time buyers who can avail of a deferred start. This allows you to defer your first repayment for one, two or three months, leaving time and money to, say, furnish the home.
Another option for first-time buyers is a low start mortgage where you can make reduced repayments for the first year of 15 per cent, followed by 10 per cent in the second year and 5 per cent in the third. Repayments then increase slightly in year four until the end of the term.
This is suitable for youngish buyers who are sure they will see salary improvements as they move up a career or professional ladder over a number of years. For example, if the monthly repayment should be £1,000, in the first year, it would be £850, £900 in the second year and £950 in the third. From then on, repayments would be £1,020, assuming no change in interest rates.
The second most popular option is the flexible month, which allows customers to take a month off per year. Other combinations of say two months are allowed, although are not so popular. The bank also allows a three-month mortgage holiday in a year. These are often used when a child is born or for extended holidays. But your repayments will increase afterwards to make up the difference.
Other options include level pay, where a set repayment is agreed and then any overpayment refused or underpayment made up at the end of the year. The advantage is having budgeting certainty for the year, but this year, many customers on this option could be facing a large repayment at the end of the year as interest rates have increased.
Accelerating repayments are also popular: the advantage of these is that you cut down on the number of years of your loan and end up repaying it early. The three revisions are lump sum payments which are suitable for, say, bonuses or inheritances, increasing repayments by, e.g., the cost of living each year or increasing by a set amount of, say, £50 a month.
Payments on a 20-year loan of £75,000 are now around £516 a month. If you increased your repayments by 1 per cent every year, the loan would be paid off in year 17 (eight month) or two years and four months early. A 2 per cent increase a year would pay off the loan in year 16, cutting four years off and 3 per cent would pay it off in year 14 (ninth month).
