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Use our UK Finance guide and learn by experience. We outline pitfalls so that you don't have to learn the hard way, as many of us often do.

Mortgage

Flexible mortgage

A Flexible mortgage will allow you to overpay or underpay on your loan, you will even be able to take payment holidays.

The best thing you can do with a flexible mortgage is make overpayments, and get rid of the debt as quickly as possible, but any money overpaid is still available for you to use if you need it. Almost every mortgage lender in the UK now offers flexible deals.

The standard features of a flexible mortgage are:

Overpayments: You can make regular or occasional extra payments without incurring early repayment charges (ERCs). This enables you to pay off your loan more quickly, which means you pay less interest. Equally, should you gain an unex¬pected windfall, no charge will be levied if you decide to pay the mortgage off in full.

Underpayments: You can make reduced payments for one or more months during a period of reduced income or extra expenditure. Most lenders require you to have built up a sufficient overpayment reserve although some allow you to overpay from the start. You need to get permission beforehand.

Interest calculated daily: Every overpayment has an instant effect on the total amount you owe as interest is calculated daily rather than annually. This means that the balance is instantly reduced and no further interest is charged. Equally, underpayments are reflected straightaway in the balance.

Payment holidays: You can take a break ~ from paying the mortgage for one or more months. Some lenders limit the frequency of underpayments or holidays, some only permit them after six, 12 or 24 months and others do not permit them in certain circumstances, such as redundancy.

Drawdown facility: You can withdraw money up to a pre-agreed borrowing limit, or equal to the sum of overpayments made previously. Since interest is charged at the same rate as the mortgage, this is a cheaper way of borrowing money than through personal loans or credit cards.

Control your Finances

Flexible mortgages UK give you control over your finances. You can reduce the term of your mortgage by several years if you make regular overpayments or pay in lump sums. Paying off your mortgage early can also potentially save you thousands in interest repayments. However, if you make underpayments and take payments holidays, the overall amount you owe will increase. Your mortgage repayments will be re-calculated to ensure the mortgage is still repaid in full by the end of the term. And if you aren't going to use any of the features of a flexible mortgage there's no point having one because you will get a more competitive rate elsewhere. Most flexible mortgages have variable rates, some now coupled with attractive initial fixed or discounted rates to entice customers, but bear in mind you are still paying a slight premium for the advantages of being able to overpay without penalty.

Who does a Flexible Mortgage Suit?

  • People on a variable income such as those who get a monthly or quarterly bonus and can make regular overpayments Self-employed people who may have lean times can underpay occasionally when necessary
  • For those who want to have a career break - to go travelling or have a baby, for example - the ability to overpay can allow them the flexibility to budget for a payment holiday later

Who does it not suit?

  • First-time buyers who need stability and won't have the means to benefit from the flexible features
  • Those who are looking to minimise payments in the short term as tlexibles may not provide the most competitive rates
  • Those without the financial discipline to overpay enough to cover the ongoing temptation of underpaying the loan

What you need to know

  • Features of a flexible mortgage include the ability to over and underpay, and take payments holidays
  • They enable you to payoff your mortgage early and save on interest • You can withdraw funds up to a pre-arranged limit. They suit people with irregular incomes and the financially savvy.
  • Rates are generally higher so you should make sure you'll use their special features

 

Browse our UK mortgage guide

For most of us, buying a property will be one of the biggest decisions and purchases in our lives. Choosing the right mortgage deserves serious attention and planning.

With the collaboration of financial advisors we have put together a comprehensive guide to mortgaging in the UK. This guide will help you to find the right mortgage for you and put you on the right path to understanding what type of mortgage you will need.

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