A flexible mortgage, as the name suggests, offers flexibility in terms of how you repay your mortgage. It is an ordinary mortgage with a range of extra flexible features bolted on. The features and how they work will differ between providers, so it’s important when you’re searching for a mortgage to find one that has the facilities you need.
What is a Flexible Mortgage?
Flexible mortgages provide greater control of your repayments with features like overpayments or underpayments permitted, payment holidays, and borrowing back overpayments.
This section will highlight some of the key features and benefits associated with flexible mortgages to provide you with an understanding of their various features that might apply to you personally.
Overpayments
Overpaying means making additional payments beyond your regular monthly repayment amount. This has the effect of reducing your balance and saving you heaps of interest. It can also mean you’re able to finish paying your mortgage a lot earlier.
Calculate your mortgage overpayments with our Mortgage Overpayment Calculator.
Underpayments
Just as it is possible to overpay, underpayment may also be allowed; that means making payments lower than your normal monthly amount for an allotted timeframe.
Payment Holidays
A payment holiday is the option to skip a monthly repayment or several monthly repayments (usually up to six). Most lenders will only allow this if you have previously overpaid. Since interest will still accrue throughout the payment holiday, your repayments might be a little higher when you resume them.
Daily Calculated Interest
This feature means that any repayments or overpayments you make are immediately deducted from the amount you owe for the purposes of calculating interest (whereas, with most conventional mortgages, they are only deducted monthly or yearly). This means you’ll pay less interest overall.
Reserve Account
Some lenders will allow you to make overpayments into a reserve account, meaning that you still have the option to withdraw that cash later if your financial situation changes. This offers all the advantages of overpayments but with additional peace of mind.
Offsetting
This feature allows you to link your mortgage to a savings account, and “offset” the cash balance against the balance of the mortgage. For example, if your savings balance is £40,000 and your mortgage balance is £100,000, you’ll only pay interest on £60,000 of the offset mortgage.
Understanding Your Mortgage Balance
The balance of your mortgage, which represents the outstanding amount you owe your mortgage lender, is an integral component of your journey towards homeownership. It reflects both the amount you borrowed to buy your property as well as any repayments that have been made since.
The Impact of Mortgage Balance on Interest
The balance on your mortgage directly determines how much interest you pay; as your balance increases, so does interest accrue. Therefore, paying more frequently could result in considerable savings of interest over the life of your loan.
Making Monthly Repayments
Monthly repayments are a key aspect of any mortgage. They are typically composed of a portion of the borrowed principal amount and the accrued interest.
Flexibility in Repayments
With a flexible mortgage, you have more control over the repayments. You can select to make overpayments or underpayments, or even take a payment holiday according to your financial needs.
Overpayments and Underpayments
Overpayments occur when paying more than your set monthly mortgage repayment amount to accelerate debt reduction faster, while underpayments occur when paying less than your set repayment amount and can help ease financial stress during financially trying times.
Types of Flexible Mortgages
Flexible mortgages come in numerous forms, each offering unique features and advantages. Gaining knowledge of them all will enable you to select one that best meets your needs.
Overpayment Mortgages
Overpayment mortgages allow you to pay more than your set monthly repayment, helping to reduce your balance on your mortgage faster. Some mortgage lenders, such as Together Mortgages and Norton Home Loans, offer unlimited overpayments, while others like Suffolk Building Society allow fee-free overpayments of up to 50% of the original loan.
Offset Mortgages
Offset mortgages allow you to connect your mortgage and savings account and “offset” any cash balance against the balance of the mortgage – for instance, if your savings balance equals £40,000 while your mortgage balance stands at £100k, only £60,000 will incur interest charges – Barclays, NatWest and Yorkshire Building Society all provide offset mortgages as viable solutions.
Flexible Lifetime Mortgages
Flexible lifetime mortgages are a form of equity release. They allow people over 55 years of age to access their property wealth in the form of a cash loan with no repayments in their lifetime. With a flexible lifetime mortgage, you can choose to borrow small amounts at different times (rather than one lump sum at the start of the mortgage).
Flexible Buy-to-Let Mortgages
A flexible buy-to-let mortgage would allow you to make optional capital repayments to reduce the loan amount, which would, therefore, reduce the monthly interest you need to pay. Some lenders may allow you to increase your borrowing again later if you need to access more capital.
The ‘Track and Switch’ Facility
NatWest provides one such solution with their “Track and Switch” facility, combining the advantages of fixed and tracker mortgages into one flexible mortgage package that enables customers to initially take out a tracker mortgage but then switch later without incurring a credit check re-credit score penalty.
Never assume one flexible repayment mortgage will fit perfectly; your own circumstances and goals must come first before making your selection. Consult with a mortgage broker or financial advisor prior to making any definitive decisions.
The Flexible Tracker Mortgage
A flexible tracker mortgage is a unique type of flexible mortgage that offers a variable interest rate.
How Tracker Mortgages Work
The interest rate of a tracker mortgage ‘tracks’ an external reference rate, usually the Bank of England base rate. This means your interest rate and monthly repayments can go up or down. Unlike a flexible fixed rate mortgage that has a set monthly repayment.
Benefits and Risks of Tracker Mortgages
This can be beneficial if the reference rate is low, leading to lower monthly mortgage payments. However, it also means your monthly payments could increase if the rate goes up. Therefore, it’s important to ensure you can afford potential increases in repayments before choosing a tracker mortgage.
How to Compare Flexible Mortgages
When you compare flexible mortgage deals, it’s important to consider which features would be most beneficial to you. You will find there are only a dozen flexible mortgage lenders to compare however each of these lenders offering can vary significantly.
Considering Your Needs
If you’re considering taking out a tracker mortgage, a drop-lock feature could provide peace of mind. On the other hand, if your income fluctuates frequently, flexible mortgages that allow overpayments and underpayments might be better suited to you.
Comparing Mortgages
Once you’ve decided on the features you need, compare mortgages to ensure the one you choose is suitable. Make sure to consider not only the rate but also the mortgage term, how much of a deposit is needed and the fees involved.
How a Mortgage Broker Can Help Compare
An experienced mortgage broker can be an invaluable ally when selecting flexible mortgages. Their access to various products and lenders ensures you can find one to meet your specific needs more easily than you could on your own. Furthermore, they provide personalised advice tailored specifically to your situation and goals to make sure you select a mortgage which best meets these goals.
Case Study: A Young Couple Remortgage for the First Time with 'Track and Switch'
This option allowed them to start with a tracker mortgage, which follows the National Westminster Bank Plc base rate. After three months, they had the option to switch to a fixed-rate mortgage without undergoing a re-credit score. This gave them the flexibility to adapt their mortgage to their changing circumstances and financial outlook.
FAQ
What is a flexible mortgage?
A flexible mortgage is a type of mortgage that offers more control over repayments. It allows for overpayments, underpayments, payment holidays, and even borrowing back overpayments, providing flexibility to adapt to changing financial circumstances.
Who would a flexible mortgage appeal to?
Flexible mortgages appeal to those with irregular income or who anticipate changes in their financial situation. This includes self-employed individuals, those expecting a bonus, or those who want the option to adjust their repayments based on their financial circumstances.
What is the difference between fixed and flexible mortgage?
A fixed mortgage has a set interest rate and monthly repayments for a specific period, offering stability. A flexible mortgage, on the other hand, offers variability in repayments and may have features like overpayments, underpayments, and payment holidays.
How is interest calculated on a flexible mortgage?
Interest on a flexible mortgage is typically calculated daily or monthly on the outstanding balance. This means the interest can decrease faster if you make overpayments, reducing the overall cost of the mortgage.
What is classified as a flexible mortgage?
A mortgage is classified as flexible if it offers features beyond standard repayments. This includes the ability to make overpayments, underpayments, and borrow back overpayments. The specific features can vary between lenders.
Conclusion
Are you seeking more freedom and control with your monthly mortgage repayments? A flexible mortgage broker may be able to assist in finding a product with features tailored specifically for you.
Always bear in mind that flexible mortgages may vary between lenders, so don’t assume the definition applies uniformly across providers. Check what’s offered to determine if it meets your needs.
With a flexible mortgage, you could potentially save yourself significant interest while paying your loan off more quickly. But be wary: flexible loans typically carry higher interest rates compared to standard ones – be sure to carefully weigh their benefits against potential costs before making this choice.
Discuss Your Options With A Mortgage Broker Now
Prior to making any major financial decision, consulting a mortgage expert is highly advised. Brokers can offer more in-depth analyses on the advantages and disadvantages of various flexible mortgage features based on your specific circumstances, while simultaneously pinpointing the most competitive rates as well as additional charges so you can rest easy knowing you won’t overpay.
As the mortgage market can be vast and confusing, having a broker help guide your search to find an individualised mortgage product could make all the difference when making informed mortgage decisions.
As previously discussed, flexible mortgages offer an ideal way of taking greater control over your repayments. To find the ideal option for yourself and your financial circumstances it’s essential that you research carefully and consult an independent broker prior to making this important financial decision.
