What is a flexible mortgage?

Do you want to save thousands of pounds and pay off your mortgage debt sooner? Would you like the option to make overpayments or underpayments from time to time? Do you want to be in control of how and when you pay off your loan?

If so, a flexible mortgage might be the right mortgage for you.

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How does a Flexible mortgage work?

With Flexible mortgages you are consistently charged the same interest rate for a set period of time. This period could be any number of months or years, although the commonest are 2, 3 and 5-year fixed periods. The rate you pay during this period is usually lower than the lender's Standard Variable Rate when you initially take out your mortgage.

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What kind of flexible mortgages are available?

There are 3 types of flexible mortgages:

1. Offset Mortgages
2. Current Account Mortgages
3. Conventional Flexible Mortgages

However, some flexible features (such as ability to make a certain number or overpayments) appear in the majority of mortgages these days. You may not need to take out a fully flexible mortgage if you can find what you want in a standard mortgage with flexible features. If you want to know what flexible options are available in the market today, talk to a professional mortgage adviser who can find the best deals available with the flexible options you want. A mortgage adviser will help you compare flexible mortgages with standard mortgages that offer flexible features so that you will find the best mortgage for your lifestyle.

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How can I benefit from flexible mortgages?

There are 8 beneficial elements of flexible mortgages:

1. Regular overpayments: An overpayment allows you to increase your monthly payment. These higher payments not only shorten your mortgage term, but are also tax efficient. Instead of paying tax on your savings, you use your savings to pay off your mortgage faster and save thousands of pounds on interest. For example, if you have a 25-year mortgage on a £120,000 property and you overpay by £100 per month, you could save approximately £23,500 on your mortgage and reduce the term by as much as 5 years. N.B. Although this flexible feature is extremely useful and you can pay off your loan sooner, be aware that some lenders might limit the amount of times you can overpay, or charge you a fee for overpaying too much. For example, lenders might restrict you by only allowing you to overpay a maximum of 10% of your outstanding loan per year.
2. Lump sum deposits: Similar to overpayments, this flexible feature allows you to pay off a large amount of your loan at any time.
3. Underpayments: Underpayments reduce your monthly payments for a limited time. Usually you will need to have made a sufficient amount of overpayments before you can make underpayments. This feature is particularly convenient if you run into any financial complications for a few months, but remember that underpayments increase the time it takes to pay off your mortgage. Extending your mortgage term will add months' worth of costly interest onto your loan.
4. Payment Holidays: A payment holiday is exactly what it sounds like - a vacation away from paying off your mortgage. This feature is especially useful if you have a financial change in your situation such as losing your job, paying large medical bills, or having a baby. However, you may need to have made enough overpayments to earn a payment holiday so that you don't go into arrears. Most lenders limit your payment holidays to a maximum number of months per year.
5. Lump Sum Withdrawals: This feature is also called 'borrowing back'. At no extra charge you can withdraw a large amount of cash from the money you have already paid towards your flexible mortgage loan. Some lenders only let you withdrawal an amount equal to your overpayment reserve, while other lenders let you borrow back the total amount of your loan. This feature is especially useful if you want to make home improvements or fund a large purchase. When you borrow back from your mortgage you are charged at the same or similar rate as your flexible mortgage rate. This rate is usually cheaper than what you'd be offered if you took out a separate loan. However, remember this feature will usually add time onto your mortgage term, so you might spend a lot more in interest in the long run.
6. Flexible Payment Frequency: Flexible mortgages let you choose whether you make your repayments every week, every two weeks, or monthly.
7. No Early Repayment Charges: There are no early repayment charges (ERCs) for paying off your loan early. There are usually no tie-in periods on your flexible loan, but some lenders limit how much you can pay back each year.
8. Daily Calculation of Interest: Since interest is calculated daily, you are immediately affected by any overpayments or underpayments you make with your flexible mortgage. Instead of waiting for the annual calculation, this flexible feature can start saving you money the moment you overpay.

These features are flexible options that may be included in your flexible mortgage. However, each lender offers different rates and fees, so speak to a mortgage adviser to find a deal that offers the best rate and the right flexible features for you.

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Do these flexible features come at a cost?

Not necessarily. These days flexible mortgages are very competitive with standard mortgages. But keep in mind that standard mortgages might contain some flexible features, so you'll need to shop around for the best deal.

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How to get a flexible mortgage in the UK

Just fill in this short form and a mortgage adviser will contact you to answer all of your questions, give you flexible mortgage advice, and get you on your way to buying your home.