Flexible mortgage terms

Press, 30 August 1988, Page 32

Flexible mortgage terms

In today’s financial climate, there is a wide variety of options available to the borrower for loans on a mortgage. Most lending in the past has been based on the standard table mortgage, where the principal sum advanced and the interest charged are paid off over a set period by a constant mortgage instalment. Alternatively, a flat interest only mortgage for a fixed period of years has formed the basis of loans from legal firms and as a suitable option to the table mortgage where the borrower does not want to repay the principal.

It is now common for a borrower to require an opportunity to reduce the principal sum from time to time in order to shorten the loan period and save interest. This can be an illusion since a higher payment is often required at the start of the loan term and this is at a time when a borrower does not have the income to meet that payment. The table mortgage can be a better option if the lender will allow addi-

tional or lump sum reductions in the principal borrowed, either from time to time or on a regular basis. In most cases, an immediate adjustment in the principal sum on which interest. is to be charged, is allowed. The same provisions can apply to a flat mortgage, where interest may be charged monthly or quarterly, and reductions of the principal sum allowed at the instalment rest point. “All monies” or “all

indebtedness” mortgages are now available from many lenders and under this encompassing loan document, the borrower can increase or reduce the mortgage at will with interest being debited to the mortgage 'account, usually quarterly. Interest rates are now commonly varied at quite short notice, the minimum in most cases being seven days, but 30 days notice is the most common. Loan terms are usually related to the value of the

security and the ability of the borrower 'to pay. Loans up to 80 per cent of valuation are possible but the old rule of two-thirds of the value of the security still applies in the somewhat more unstable property market that presently exists. This is particularly the case with commercial mortgages since values of this class of security have tended to decrease with the decline in economic activity that has occurred during the last twelve months.