What is a flexible mortgage?

In this brief blog, we are going to talk about what a flexible mortgage is.

What are flexible Mortgages?

A flexible mortgage is just like a normal mortgage but it has a host of features which makes it much more flexible than a standard mortgage. A flexible mortgage could allow you to make overpayments, underpayments and take payment holidays without any additional cost to you.

Flexible mortgages are especially good as they allow you to overpay on your mortgage and save on interest rate payments. 

Flexible mortgages may be good for you if you are:

Self-employed

Whose income can vary from month to month due to bonuses/commission

On a temporary contract

On a zero-hour contract

Looking for a mortgage based on gambling income

Types of flexible mortgages

There are various types of flexible mortgages

Flexible repayment mortgages

A flexible repayment mortgage is just like other repayment mortgage but it has some of the flexible features or all of the flexible features of a flexible mortgage. At the end of the flexible mortgage you will have repaid all of your mortgage balance.

Flexible offset mortgage

A flexible offset mortgage is a mortgage where you have a linked savings account which offsets against your mortgage balance. This means you will pay less interest if you have any savings in your linked savings account when the interest is charged on your mortgage balance. Some offset accounts will even pay you interest on your savings.

Flexible fixed rate mortgage

Flexible fixed rate mortgages are mortgages which are flexible but have afized rate. This means you have the certainty of a fixed rate but you also have the flexibility of a flexible mortgage.

Flexible tracker mortgage

Flexible tracker rate mortgages are mortgages which track the bank of England base rate. You can also get a discount mortgage which tracks the Bank of England’s base rate but is discounted by a margin.

A flexible tracker rate mortgage which allows you switch can be very attractive as you can switch to the mortgage with the best rate with no early repayment charges.

Most flexible mortgages will:

• Allow you to make Overpayments
• Porting the mortgage
• Allow you to make Underpayments
• Allow you to take Payment Holidays
• Provide a reserve account from which you can access overpayments you have made
• Ability to offset savings and reduce the amount of mortgage debt you pay interest on
• Allow interest to be calculated daily
• Allow you to switch mortgages without any cost to you.

Mortgage overpayments

Flexible mortgages allow borrowers to overpay above the required monthly mortgage repayment. This means a lot of mortgage borrowers could potentially save a lot of money on their interest rate charges.

Most flexible mortgages will allow you to make an increase to your monthly mortgage repayments or simply make lump sum mortgage overpayments when you want to without any early repayment mortgage payments.

This of course means that you can always reduce your monthly mortgage repayments back to what they were originally set at if you cannot afford to continue making mortgage overpayments.

Making mortgage overpayments not only means you can save on your mortgage interest rates but it also means you could potentially pay your mortgage balance much faster than your original mortgage term.

Although flexible mortgages allow you to overpay on your mortgage some flexible mortgage lenders may also restrict how much you can overpay on your mortgage each year.

Some lenders may restrict the amount you’re able to overpay on certain types of flexible mortgages (usually up to 10% of the balance). If you go over this amount a charge may apply.

Porting the mortgage

Another main feature of flexible mortgages is that the will usually allow you to port the mortgage from one home to another. You will usually still have to go through the mortgage lenders mortgage affordability checks again but you won’t have to pay an early repayment fee.

However, if you reduce your borrowing when you move to your new place you may well need to pay an Early Repayment Charge on what you repay.

If you need to borrow more when you port your mortgage the additional amount which you borrow may be charged at a different mortgage rate.

Mortgage Underpayments

Mortgage underpayments are one of the main features of flexible mortgages.  Underpaying your mortgage is a good feature to have incase you are going through some financial difficulty and are unable to make the monthly mortgage repayments you will typically have had to.

A flexible mortgage lender will typically allow you to underpay your mortgage up to a certain amount for a fixed period. Most flexible mortgage lenders will only allow you to underpay your mortgage if you have previously overpaid your mortgage and in some cases by the same amount.

Each mortgage lender will have their own requirements for how and when you can underpay your mortgage.

Before you underpay your mortgage you should inform your mortgage lender to ensure that they are aware if not your mortgage lender could mark your payment as missed and this could affect your ability to get credit in the future.

Payment holidays

Payment holidays are another feature of flexible mortgages.A mortgage payment holiday is when you take a break from your monthly mortgage repayments.

A payment holiday could be very important if you are going through some financial difficulty as it will allow you to put your finances in order before restarting your monthly mortgage repayments.

Most mortgage lenders will have a cap on how long you could take a mortgage payment holiday and a mortgage payment holiday will cost you more as it means the interest rate charged on your mortgage will be much more due to the fact that you are paying interest on a bigger mortgage balance than you would have been if you stuck to your original mortgage repayment schedule.

Some flexible mortgage lenders will only let you take a mortgage payment holiday if you have overpaid on your mortgage in the past.

Flexible mortgage savings account

Another feature of the flexible mortgage account is the flexible savings account. A flexible mortgage savings account allows you to borrow back whatever you have overpaid on your mortgage. This means if you ever need more money in the future you can borrow from your mortgage. This means your flexible mortgage can allow you to borrow back money, save money on interest and underpay your mortgage when you see fit. 

With the flexible mortgage savings account feature your mortgage account can essentially be used as a savings account for any future events.

Offset account

A linked savings account which offsets against your mortgage balance can also be one of the main features of a flexible mortgage account. A linked offset account allows you to offset your mortgage balance with whatever you have in the linked savings account. This means the mortgage balance you pay interest in is much smaller and can mean you save on interest charges.

Daily interest calculations

Daily interest calculations are another very important feature of flexible mortgages. When your interest is calculated daily this means you have the most opportunity to save on interest repayments (as the payments are attributed to interest charged which are calculated every day meaning you don’t have to wait till the end of the month) as you can overpay your mortgage

Switching your mortgage

Another very important feature of flexible mortgages is that some flexible mortgages will allow you to switch your mortgage to another type of flexible mortgage (e.g switching from a fixed rate to a standard variable rate mortgage or vice versa) without any early repayment penalties.

Not all mortgage lenders will offer the above flexible mortgage features. If you are looking for some specific flexible mortgage features then check with your mortgage broker so they can find your mortgage lender which fit your bill.

Advantages of Flexible mortgages

Flexible mortgages give you the option to overpay or underpay which can drastically reduce the cost of your mortgage.

Flexible mortgages allow you to manage your financial life especially in times when your financial situation becomes worse. You can take payment holidays at no cost to you

Disadvantages of flexible mortgages

Flexible mortgages will usually have higher interest rates than typical mortgages due to their flexibility.

Seek the advice of a mortgage broker when considering flexible mortgages.

Flexible mortgage calculator

Most flexible mortgage lenders have calculators which you can use to see how getting a flexible mortgage calculator from them will affect you.

You can find a host of flexible mortgage calculators from different mortgage lenders. These calculators are naturally just an indication of the mortgage lenders assumptions and not a mortgage offer or do not guarantee you will be given a mortgage with that mortgage lender.

Flexible offset mortgage calculator

A flexible offset mortgage calculator takes into account the amount which is offset on your mortgage and lest you know how much using a linked savings account to offset your mortgage balance will save you.

Flexible mortgage deals

There are various flexible mortgage deals available. Using a whole of market mortgage broker will enable you to get access to these.

What is a flexible drawdown mortgage?

A flexible drawdown mortgage is an over 55 mortgage or an equity release mortgage  which allows you to drawdown on it with some flexibility. This could be how often you’re able to drawdown from it or how much you are able to drawdown from it.

Can I get a flexible overpayment mortgage?

Yes there are mortgage lenders in the UK who offer flexible overpayment mortgages and you may be able to access one of these mortgages based on your mortgage affordability.

Can I get a flexible mortgage anywhere in the UK?

Not all flexible mortgage lenders operate UK wide. So Flexible mortgage lenders are restricted to certain postcodes and this is particularly common in Northern Ireland and Scotland.

Using a Flexible mortgage broker

You may want to consider using an independent mortgage broker to get a mortgage.

Mortgage brokers are important as they can access mortgage products from across the whole of the market in some cases. This could be over 11,000 mortgage products. This may have some advantages than going directly to a mortgage lender.

A mortgage broker will look to understand your financial circumstances and then provide recommendations on which mortgage products may be suitable for you.

After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously or it will give you confidence that your remortgage is indeed a possibility before you make a full mortgage application. Once you have found a home you want to buy or are satisfied with the mortgage offer for your remortgage then the mortgage broker will then look to get you a mortgage offer.

This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.

If you are happy with everything you can then go on to secure your  mortgage with the help of a conveyancer. Your conveyancer will manage the legal searches on the property to ensure there aren’t any issues with it, they will oversee the sales agreement to ensure it is in your best interest, they will manage the transfer of mortgage funds, exchange contracts with the seller or their conveyancer and set a completion date with the seller or their conveyancer.

In this brief blog we discussed what a flexible mortgage is. If you have any questions or comments please let us know.

If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.

You can also contact the debt charity “Step Change” if you are in debt and need help.