What is a flexible mortgage?A flexible mortgage is a type of mortgage with flexible features as to how you choose to pay back your debt.
The rate of a flexible mortgage is fixed for a defined length of time, typically 2,3 or 5 years. This rate is normally lower than the mortgage provider standard variable rate at the time of the application for the mortgage.
Advantages and disadvantages of flexible mortgages
- By repaying your loan earlier you could save a big amount of money in interest
- It is comforting to know you have choices as to how you want to pay back your mortgage
- Some mortage providers impose restrictions on underpayments and overpayments
- You could end up spending more on interest if you keep underpaying as it extend the term of the mortgage.
- The rate for flexible mortgages can sometimes be higher than other types of mortgages.
What are the different flexible mortgage types?
There are 3 sorts of flexible mortgages:
- Conventional flexible mortgages
- Current Account mortgages
- Offset mortgages
It is important to note that a lot of flexible features are offered in a lot of standard mortgages. It may well be that a normal mortgage could offer enough flexibility for your needs and that you don’t need to take out a flexible mortgage. We strongly recommend that you talk to an independent financial adviser who can shed some light on all the type of mortgages available and help select the best type of mortgage to fit your current circumstances.
What are the benefits of flexible mortgages?
Flexible mortgages offer different features:
- Underpayments – an underpayment is a decrease of your monthly repayments for a small length of time. Mortgage providers usually allow underpayments if you have made enough overpayments in the past. Underpayment can come an interesting feature should you have to face a difficult situation for a couple of months. Bear in mind that underpayments extend the term of the mortgage and the interest amount you will have to pay.
- Payment Holidays – a payment holiday is a break in your monthly payments. It is a useful option if you have to face events that put a strain on your finances such as becoming ill or being unemployed. Lenders usually only allow payment holidays if you have made overpayments in the past, and may have a limit on the how many months per year where you can have a payment holiday.
- Lump Sum Withdrawals: With lump sum withdrawals you can withdraw an amount of money from the money you have already paid back towards your mortgage. Many lenders only allow you to withdraw an amount less than what you have previously overpaid, but some lenders allow you to withdraw the entire loan amount. Because the interest rate you are charged for your withdrawal is the mortgage rate, it is usually an interesting alternative to separate loans if you need to borrow funds for an important buy. Do not forget that lump sum withdrawals will add to your mortgage term and that you will end up paying additional interest.
- No Early Repayment Charges: with flexible mortgages there are usually no early repayment charges in the event where you end up repaying the mortgage debt before you read the end of the term.
- Regular overpayments: an overpayment is the possibility to increase the amount you repay every month. Not only overpayments make it possible to reduce the length of your mortgage term, they are a tax efficient way to save money as well, too, as an alternative to a saving account for which you would be paying tax on the interest. Bear in mind that most lenders impose limits on the amount you can overpay.
- Lump sum deposits: in the same way as overpayments, lump sum deposits give you the possibility to pay back a percentage of the financial debt as a one off deposit as opposed to regular repayments.
- Daily Calculation of Interest: overpayments or underpayments you make will have an immediate effect as interests are calculated daily.
It is important to notice that many of these features can be offered by standard mortgages. It is therefore important that you talk to an independent mortgage adviser to understand what is the best mortgage type based on your current circumstances.
Do these flexible features add to the cost of a mortgage?
This will depend on the mortage provider but most of times it doesn’t. The rates for flexible mortgages are comparable to standard mortgages. Keep mind that many standard mortgages offer flexible features which could meet your needs.
How to get a flexible mortgage in the UK
We recommend that you fill out the online form on this website. A professional financial adviser will contact you to provide you with answers to all the questions you may have and provide you with some general mortgage advice.