Flexible mortgage

There are many varying degrees of flexibility. But for a mortgage to be truly flexible it needs to allow the borrower to do the following;

Overpay
Underpay
Take payment holidays
Borrow back overpayments
Draw-down prearranged additional monies
Carry no redemption penalties
Calculate interest daily.


By overpaying, your mortgage will finish before the original mortgage term, thus saving you thousands of pounds in interest payments. Even small regular overpayments can make a big difference to the overall interest that you will pay, so it is very worthwhile considering this option. You will find that the interest save in overpaying into the mortgage is greater than the interest gained in holding the money in a bank or building society savings account. And the interest saved is done so without being taxed.

Once you have built up an amount of overpayments you can ask the lender to allow you to underpay up to the amount that you have previously overpayed. This can be handy for the odd month when finances are short.

Some lenders will allow you to take a payment holiday i.e. a complete break from making mortgage payments. Of course you have to have built up sufficient overpayments to cover the period you take off and the length of term allowed will vary from lender to lender. This facility could be useful when planning a family.

Whilst overpaying regularly or in lump sums is a great way of saving money, this overpayment can also provide a source for cash for you in the event of any unforeseen circumstance or if you want to buy something expensive. The overpayments are regarded as your money and therefore you can borrow them back.

Some flexible deals carry no redemption penalties. These are normally term flexible variable rates that last for the whole of the mortgage term. But recently, some lenders have introduced short term fixed, discount and tracker schemes that have redemption penalties that cover the scheme period. At the end of the scheme period the rate reverts to the term flexible variable rate. The term flexible variable rates on flexible deals are usually very much below the lenders usual standard variable rate.

Interest is calculated daily which means that any payments and overpayment are credited to the mortgage account as soon as they are paid, so you are immediately paying interest on a smaller amount of debt. This saves you money in interest charges that would otherwise add up to a significant sum over a number of years. Traditionally, mortgage interest was calculated and applied annually in arrears, so you would be paying interest on the same amount of debt all year, even though you had been gradually decreasing it during that time.