Why A Flexible Mortgage Could Be Your Best Buy

The flexible mortgage has become a big part of the UK mortgage market, yet many people don't understand what a flexible mortgage is and why it might suit their circumstances. Here's what you need to know about flexible mortgages.

What Is A Flexible Mortgage?

A flexible mortgage is a mortgage that gives borrowers greater control over managing their finances. Most flexible mortgages allow borrowers to overpay (or pay in lump sums) when they have some extra cash to spend and to underpay when finances are tight. A flexible mortgage also offers borrowers the chance to take payment holidays. Finally, with a flexible mortgage, borrowers can usually repay the mortgage early without any financial penalty. There are usually conditions attached to these flexible mortgage features. For example, some flexible mortgage lenders will not allow borrowers to overpay while enjoying a preferential interest rate. Others prohibit borrowers from overpaying near the end of the mortgage. It's worth reading the fine print to see which conditions might apply to your flexible mortgage? Remember also that underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

Who Needs A Flexible Mortgage?

The main features of a flexible mortgage best suit people with flexible income. People who are self-employed may get a big cheque one week and then nothing for weeks. Other people with variable income could include people who are on commission, such as sales people, and people who earn annual bonuses, such as workers in the City and others in the financial services sector. There are in fact many lenders who will offer flexible and offset deals for high fliers and high earners who want to borrow more than £500,000.

People who are likely to need money for a big family event such as a wedding or who want to refurbish their homes might also find that a flexible mortgage suits them. This is also true for people who are starting a family, who might be able to overpay before the baby arrives and underpay after the birth. Some lenders also recommend a flexible mortgage to debt consolidators, though they warn that using this method to consolidate debt turns a short term debt into a long one.

Which Kind Of Flexible Mortgage Should I Choose?

Although there are many mortgages with flexible features, there are two main types of flexible mortgages. These are flexible offset mortgage and the current account mortgage. Both have similar flexible features but they operate in slightly different ways. The flexible offset mortgage links your savings account and mortgage account, so that you pay interest only on the overall debt. However, the accounts remain separate. With a current account mortgages, you just have one account with a large borrowing limit (like an overdraft limit).

How Does A Flexible Mortgage Work?

Here's an example of how a flexible offset mortgage works. Suppose you have savings of £20,000 and a mortgage of £100,000. With an offset flexible mortgage you would only pay interest on the debt of £80,000. You will not earn any interest on your savings, but you would save even more by paying less in mortgage interest. Current accounts and credit cards can also be part of an flexible offset mortgage. Over the course of time, with interest being charged daily, you could end up paying much less interest and could even pay off your flexible mortgage early - without penalty, of course.

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