Flexible mortgages, as the name suggests, provide more flexibility than standard mortgages. They do so by offering customers a variety of features, including overpayment, borrowing back and even payment breaks.
Understanding these basic features will leave you well versed in the fundamental structure of flexible mortgage products. However, as with any mortgage, careful consideration of individual plans is a crucial step in finding one that is right for you.
The main features and advantages of flexible mortgage plans are:
Among the most useful features of a flexible mortgage is the option to overpay; this will usually be under the proviso that you do not actually pay your mortgage back in full. Normally, you can choose between making regular overpayments in addition to your standard monthly repayments, or depositing a large lump sum.
The appeal of overpayment, of course, lies in its ability to save you money by cutting the size of your balance and therefore the amount of interest you will have to pay. The other benefit is that you might end up paying off your mortgage earlier than you thought.
It is crucial to check whether there are any limits to the amount you can overpay. If there are, going over these is likely to result in an Early Repayment Charge.
Borrowing back is something that is only available if you have been making overpayments. It allows you to ‘borrow’ the money you have overpaid to spend however you choose. It essentially means that you are not locking any overpayments you make in your mortgage; you will be free to access them when you choose, in a similar way to a savings account.
However, it is important to remember that certain rules will often apply here. For example, you might need to have overpaid by a certain amount to access this service. There is also commonly a minimum sum you will need to borrow back.
Also known as a payment holiday, a payment break gives you the option to pause your mortgage repayments for between one and six months (depending on your mortgage).
You will need to apply to your bank before being allowed to go ahead. Usually, your eligibility for a payment break will depend on factors such as how long you have had the mortgage for and whether (and how much) you have overpaid.
It is important to understand that this will be a break in payments only – not your entire mortgage. This means that you will go on to accrue interest over the hiatus in payment.
From time to time, you may find it beneficial to take advantage of underpayment options. As with payment breaks, you will need to have this approved by your lender prior to going ahead. Often, this option will only actually be available if you have previously overpaid, usually to an extent which covers the amount you propose to underpay by.
Some flexible mortgages also have the advantage of calculating your interest daily. From a borrower’s perspective, this is the most advantageous method, because it essentially works out less expensive than having it calculated monthly or yearly.
It also has particular advantages when paired with other features. For example, if you both overpay and have your interest calculated daily, your overpayment will have an immediate positive effect on the amount of interest you are accruing.
Whatever kind of mortgage you are considering, it is best to seek advice from an independent financial advisor before making your final decision.