Flexible Mortgage

There will always be a few surprises that will affect you financially throughout life. You may inherit a large sum of money, be rewarded at work with a pay increase or may even need to save a little after overspending on holiday.

Whatever your reasons may be, your financial circumstances will vary over time. Flexible mortgages were introduced to cater for these financial changes and allow you to overpay your mortgage when you have surplus cash, and underpay the mortgage when money's a little tight.

What is a Flexible mortgage?

A flexible mortgage is one where you are able to alter your monthly repayments to suit your changing financial circumstances without penalty. A truly flexible mortgage will allow you to achieve this by:-

• making regular or occasional overpayments
• making underpayments
• taking a payment holiday or
• drawing out ('redrawing') your previous overpayments if you need to

Flexible mortgages will not apply an Early Redemption Charge for the above and will calculate your interest daily (so you will instantly receive the benefit of reduced interest of any overpayments).

e.g. By overpaying by £100 per month, a 25-year £150,000 mortgage at an interest rate of 6% would finish almost five years early, saving almost £30,000 in interest.

In the past, you may have expected to be charged a higher rate of interest for a flexible loan, however nowadays so many mortgages come with these features that the difference in cost is negligible.

It is worth mentioning that not all mortgages marketed as flexible will have all of the features listed above but must contain at least one (whilst these do offer some flexibility, they are not considered truly flexible mortgages). It is therefore important to check the product information carefully to see what you can and can't do when comparing deals between lenders. It is also advisable to check whether there are any limits on the amounts or frequency with which you can overpay and underpay without charge as this varies from lender to lender.

The benefits of flexible mortgages

• The major benefit of a flexible mortgage is that you can clear your loan earlier by making overpayments. This can potentially save you a fortune in interest charges
• You are not charged any Early Redemption Charges for overpaying a flexible mortgage (unless you are looking to pay off the mortgage in full)
• Should you be short of cash in a given month, you can either underpay the mortgage or take a payment holiday (usually only if you have previously overpaid the mortgage)
• If the lender allows 'redrawing', you can take back any money you have previously overpaid effectively making the mortgage a type of savings account

The drawbacks of flexible mortgages

• Be cautious when taking payment holidays or underpaying the mortgage as the amount owed will be added to the mortgage balance. This means that interest will accrue on this amount and your payments will increase.
• The longer you have an unpaid amount outstanding on the mortgage, the more interest you will have to pay in the long term

Summary

• Flexible mortgages allow you to alter you mortgage repayments to suit your financial circumstances
• Mortgage repayments can be altered through overpaying, underpaying, payment holidays and redraws
• Not all mortgages advertised as flexible are truly flexible and may only allow some of the features listed above
• Flexible mortgages vary from lender to lender so ensure you read the product information carefully to see what you can and cannot do
• Be careful when underpaying or taking a payment holiday as your payments will increase and interest will accrue on the unpaid amount

For more information about 'Flexible Mortgages', you can call us on 020 8783 1337 or submit an online quote.