Flexible mortgages
A flexible mortgage will offer a number of possible options such
as the ability to make underpayments or overpayments, to make lump
sum payments, to borrow additional amounts or to take payment holidays.
The flexibility is nearly always conditional, for example you
may have to build up a surplus of overpayments before taking a
payment holiday.
Some mortgages are marketed as ‘flexible’ and include
a significant number of features, however many other mortgages
from high street lenders now include an element of flexibility
as standard, such as the ability to make overpayments.
Advantages of a flexible mortgage
- By making slightly higher monthly payments than required
or paying off lump sums, you may be able to repay your mortgage
loan more
quickly and save interest over the mortgage term. However,
many lenders now offer the option of paying off up to 10% of
the mortgage
loan a year on other mortgage types
- You may be able to take
a payment holiday when your budget is stretched
- You may be able
to borrow more than the initial mortgage amount - perhaps for
some home improvements - up to an agreed limit.
This lets you borrow at the mortgage rate, rather than taking out a
loan which is often at a higher interest rate
- Many deals feature
daily interest which means that the interest due on your mortgage
is calculated on a daily basis rather
than monthly or yearly. This means that any payments you make have an
impact on the amount outstanding on your mortgage loan within
a day. A saving can therefore be made compared with monthly or yearly
interest deals
Drawbacks of a flexible mortgage
- You may not want to take advantage of all the options
available and because you are likely to be paying for flexibility
with a higher interest rate, you may find you could get a lower interest
rate elsewhere
- Many flexible mortgages feature a variable rate which means
that an increase in interest rates would be reflected in
increased monthly payments
- Early repayment charges may apply for at least the
term of any initial incentive deal period
- There may be an arrangement
or booking fee payable for a flexible mortgage