Flexible mortgages

There is not really a fixed definition of flexible mortgages although they tend to share several common features. Firstly there is typically the option to make overpayments without penalty, and to either make underpayments for some time or even to take payment holidays. It usually the case that you can only apply to make underpayments or take payment holidays once you have had the mortgage for a certain period of time, in some cases you may have to overpay before you can make an underpayments.

It is generally accepted that all flexible mortgages should have a daily calculation of interest which is important if you do make overpayments as it means that extra capital will instantly reduce the interest portion of your payments. This can make a significant difference to total interest repayable over a mortgage, however there are relatively few mortgages nowadays with monthly or annual interest calculations anyway.

Another relatively common feature of flexible mortgages may be a drawdown facility, allowing you to borrow a fixed amount of extra funds at any time without requiring new approval. This is usually agreed as part of the loan to value limit of the mortgage. For example if you remortgaged and your loan to value was 72% the lender may agree that you can borrow up to 3% of the valuation at any future date without requiring new income verification or valuations.

This feature may even be available through a cheque book or credit card tied to the mortgage account which allows you access to the extra funds available without even having to approach the lender to withdraw the money. Care should be taken with the terms and conditions around extra borrowing though to ensure no nasty surprises.

Another feature which may make part of a flexible mortgage arrangement might be in the inclusion of a current account linked to the mortgage or even an offset facility. A current account feature which offsets balances against the mortgage interest can help to chip away at your mortgage balance as even if the account is only full for a couple of weeks in the month it still means you make an effective overpayment every month.

Many products from high street banks now meet flexible mortgage terms as standard however there is still a broad range of difference between the rules applicable to each lender particularly around overpayments and early redemption penalties.

The pros and cons of flexible mortgages

Pros:

  • Features which make the mortgage easier to live with
  • Daily calculation of interest
  • Possibly option for regular or unlimited overpayments
  • May include offset facility or linked current account
  • Drawdown facilities may be included offering further borrowing at competitive costs

Cons:

  • Some features may only be available after several months
  • Some features may cease being available in arrears
  • Arrangement costs and interest rate may be less competitive

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