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UK Mortgages & Loans -> Flexible Mortgage

A flexible mortgage is one that is designed to let the borrower make extra repayments on their mortgage when they have any extra money. They can also decrease and even miss payments if they cannot afford to make them.

The main advantage of a flexible mortgage is that a lot of schemes are presented on a monthly or daily interest calculation basis.

Before the arrival of the flexible mortgages a lot of UK mortgage lenders were actually charging interest on a yearly basis which meant that the borrower who were making over payments on their mortgage were not actually obtaining the benefit straight away due to the fact that it could be as much as a year before their capital amount was decreased by the over-payment. 

On the other hand, with a flexible mortgage when the interest is calculated on a daily basis, the over payments that have been made will actually decrease the mortgage balance straight away meaning that the borrower would be charged smaller interest amounts from the next day.  As the borrower is making overpayments on their mortgage, it will of course decrease their mortgage term by years (which will save on mortgage payments).

A lot of flexible mortgages will also come without any Early Redemption Charges meaning that the borrower will not be ‘tied-in’ with any specific lender. As well as this, the interest rate that is charged will generally be lower than the normal Standard Variable Rates that are charged by another more ‘standard’ mortgage lender.

The advantages of having a flexible mortgage are:

Offset – the flexible offset mortgage will let the borrower offset any savings that they have against the actual value of their mortgage loan. This will mean that they will pay less interest or they could repay their mortgage earlier. 

Over or under payments - the flexible mortgage will let the borrower take payment holidays if they wish to. If they are having financial difficulties they will be able to miss or reduce their mortgage payment. On the other hand, if they have extra money one month, they can also overpay on their mortgage meaning that they will repay their loan more quickly and be charged less interest. These mortgages are therefore, ideal for those people who have fluctuating incomes such as the self employed or contract workers. They are also suited to individuals who would like to make extra lump sum payments when they receive additional bonus payments or a salary increase, borrowers who have larger mortgage loans and those who want to have quick access to a pre-agreed credit limit.  

Repay lump sums without being charged a penalty - normally a flexible mortgage will let the borrower repay capital amounts up to a given limit and without a penalty charge. 

Other advantages would be that a flexible mortgage will let the borrower withdraw any extra money they have paid (overpayments) up to a certain limit. 

The disadvantage of these types of mortgage would be that generally the borrower will not be able to get fixed, capped, discounted or cash back rates and the lack of discipline in the monthly repayments could end up in a very badly managed mortgage account.

These mortgages mean that the mortgage lender will send the borrower a statement every month showing them a list of choices that they could use for that month's mortgage payment. Of course, there is a minimum payment amount, however, if they have extra money that month they will be able to repay more than this. One of the options could be just to pay the interest amount. This will ensure that the interest does not build up. Another disadvantage of these mortgages is that if the borrower only repays the minimum amount each month. After a certain length of time, they will be sent a mortgage statement for the rest of the term of their mortgage. If they have only paid off a little amount, this would be taken into account, and the balance recast, with a higher minimum payment amount simply to make sure that the borrower can still repay their entire mortgage within the agreed period such as 25 or 30 years. Therefore, unless the borrower can discipline themselves to make the highest payment they can when they have the money; this form of flexible payment mortgage is not really suited to them.

If you are considering a flexible mortgage, view our list of top flexible mortgage lenders who can help find you a great deal. Your new deal is likely to be more flexible than your current home loan.

Even so called standard mortgages are becoming more flexible and offer the facility to make capital repayments etc.