A flexible mortgage gives you some scope to change your monthly payments to suit your ability to pay. It’s also useful if you want to pay off your loan more quickly. Several flexible features are becoming common and they aren’t limited to mortgages with ‘flexible’ in their name. Here are some flexible features:
- Overpayments – you can pay more than your normal monthly mortgage payment or pay off a lump sum, or both. If you pay off a lump sum you benefit from paying less interest each month (because the amount you owe is now less) or if you continue paying at a higher level, you will pay off your loan more quickly. You can get the benefit straight away if you have a mortgage on which interest is calculated daily or monthly. Check whether any restrictions apply.
- Underpayments and payment holidays – you pay less than the normal monthly payment for a limited period (say six or twelve months). You may even be able to stop making payments altogether (a payment holiday). This could be useful if, say, you lose your job or take time off to care for a child.
- Borrow extra (loan drawdown) – you can borrow extra without further approval from your lender, provided the total loan does not go above an overall limit. Alternatively you may be able to ‘borrow back’ against earlier overpayments.
Is a flexible mortgage right for you?
Possibly, yes, if you are likely to use these features, for example if you’re self-employed and have a variable income.
Possibly not, if you are unlikely to use these features. A less flexible mortgage may be cheaper or more suitable for you.