Our Simple Guide To Flexible Mortgages

The Mortgage Banks Simple guide to flexible mortgages
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What Is A Flexible Mortgage?

A flexible mortgage is just a normal mortgage which is more borrower-friendly. It has special features included in the contract to give the borrower more options about how and when they make repayments.

Some of the most common features are facilities that allow you to overpay or underpay on the mortgage without being charged penalty fees- a supremely useful feature if you happen to be self-employed or have an income which fluctuates from month-to-month.

All kinds of mortgages can be made flexible: whether you’re looking for a fixed-rate deal, tracker mortgage, discount rate, or just a plain old standard variable rate mortgage, you can be sure that there are flexible versions of these contracts available somewhere on the market.  

Continue reading our guide for the full nitty-gritty details.

Who Is A Flexible Mortgage For?

Over the lifetime of a mortgage, almost anyone would at some point stand to benefit from having a little bit of leeway in making their mortgage payment- unplanned expenses can blow your monthly budget out the water with little warning and leave you scrambling to make what is probably your largest outgoing.

However, certain groups of people are more likely than others to benefit from budgetary wiggle-room because their monthly income is more likely to fluctuate compared to other people’s:

  • Self-employed workers
  • People on a zero-hours contract
  • Freelance workers
  • Workers whose income changes based on sales or commission

Top Flexible Mortgage Features

There many special features that can be added to a mortgage contract to make it more flexible, and each lender is likely to have their own combination of these on offer with at least one or two of their mortgage deals.

Overpayment

An overpayment facility allows you to pay more than your agreed monthly instalment without having to pay any extra fees. Paying more than you need to consistently over time means that in the end, you’ll end up paying off your mortgage sooner and pay less interest overall.

You set up a direct debit to make regular overpayments or pay off large chunks at once in lump sum deposits. Whichever way you decide to pay, most lenders cap total overpayments at 10% of the mortgage each year.

Underpayment

Having an underpayment facility in place can avoid potentially serious consequences if your available income ever falls short of your mortgage repayment. If you have made overpayments in the past, some lenders will allow you to make underpayments up to the amount you have overpaid on the account.

Offset

An offset mortgage is a great option for people who have a substantial amount of stashed in savings or close family members who are willing to lend their name to your mortgage.

When you choose to offset a savings account, the balance of that account gets deducted from your mortgage total when calculating interest. For example, if you have a £200,000 mortgage but offset it with £40,000 savings, you would only be charged interest on £160,000. On a 25-year mortgage with a fixed 3 per cent interest, this would save you £193 per month.

While the savings are used to offset the mortgage, you won’t be able to make withdrawals from them without affecting the interest charged on the mortgage. It’s also not essential for the savings to be held in your name- family members can also use their savings to offset your mortgage.  

Switch & Fix

If you’re on a tracker mortgage, one flexible feature that is worth looking out for is a ‘switch & fix’ facility. Normally when interest rates start to climb, so do your tracker mortgage’s monthly payments- and like all mortgage offers, it can be costly to jump ship before the deal has ended.

However, a switch & fix facility gives you the option to move from a tracker mortgage onto a fixed-rate deal at any time, without having to pay any fees for the privilege.

Daily Interest

If you want a mortgage which allows you to make overpayments, it’s a good idea to check that it also features interest which is calculated daily. For most mortgages, the interest on your balance is worked out monthly or even yearly, but this can work against you if you’re making overpayments.

By calculating your interest daily, any changes to your balance are taken into account right away, which means your overpayments can start making a difference to the interest you pay right away.  

Optional Payment Holiday

Some mortgages offer the option of a short-term break from monthly payments (normally up to 3 months). This can be a useful buffer if you experience a fall in income or even just want to spend a few months away from home.

When you enter into a payment holiday, the payments you skip remain on your mortgage balance and accumulate interest, so eventually, you will need to pay them off, and until you do, they’ll accumulate interest.

Borrow Back Facility

A few mortgages offer a ‘borrow back’ facility, which lets you dip into any funds you overpaid if you need capital at a later date. Whenever you make an overpayment on your mortgage, that money is stored in an account linked to the main balance.

If you need cash in the future, you can borrow it from your mortgage balance. This has the benefit of minimizing the interest you pay because your mortgage balance is reduced for the periods in between your overpayments and borrowing back.

Portability

When you move home, it’s normally not possible to take the same mortgage with you. If you have a good deal, this can mean having to ‘break up’ with your mortgage and re-enter the market again. Even if you don’t have a particularly great deal, remortgaging is often be a time-consuming and costly business.

However, with a ‘portability’ clause on your mortgage, you can transfer the same deal with the same provider when you move home, saving you time and money, which you can funnel instead towards the actual task of moving house.

Percentage Of Homeowners Who Have Made Over-payments On Their Mortgage By Region

RegionHow many homeowners have made a mortgage overpayment
Scotland38%
Yorkshire & the Humber43%
North East41%
North West41%
East Midlands43%
West Midlands52%
Wales46%
East of England40%
London60%
South East48%
South West 44%

Mortgage Overpayments By Financial Conduct Authority ‘Family Financial Status’

StatusHow the FCA describes this groupHow many homeowners have made a mortgage overpayment
Starting OutHighly educated, but with a below average income. Comfortable with technology. Almost all members of this group are under 45, single with no dependants, and rent their home27%
Busy AchieversHigh earners who have mortgages, savings and their own pension arrangements25%
Stretched but resourcefulHomeowners who are confident about financial matters but who are busy people and are pressed for time22%
Affluent & AmbitiousUsually in the 35-60 age group, highly educated and earning high incomes. They are confident about making financial decisions20%
Mature & SavvyHave above-average levels of income and savings, and have a good knowledge of financial matters18%
Striving & SupportingOn a low income and struggling to meet regular outgoings. The majority of this group have dependent children. Generally risk-averse16%
Retired with resourcesUsually, homeowners, members of this group are financially savvy, with a high level of savings and little debt. They are usually risk-averse when it comes to investment.16%
Living for nowEarning a low income. Not confident with financial matters, but prepared to take more risks than the average person. They are also computer literate and make regular use of the internet15%
Hard PressedEarning a low income, struggling to pay bills, not confident financially and may have no savings at all10%
Retired on a budgetUsually, homeowners, members of this group are financially savvy, with a high level of savings and little debt. They are usually risk-averse when it comes to investment.
Source: Financial Conduct Authority

How Can The Mortgage Bank Help?

Here at The Mortgage Bank, we have partnered with some of the UK’s leading mortgage brokers.

They have already helped thousands of people get the best remortgage deal even people that have been refused before, and they can do the same for you.

Choosing an independent adviser means they won’t recommend a scheme unless they are sure it is in your best interests. Their advice is also regulated by the FCA, which gives you an additional layer of protection.

If you would like to speak to one of these brokers who can provide you with a ‘whole market quote’ then click on the below and answer the very simple questions.

Len Burgess
Len Burgess
Len Burgess is a successful digital entrepreneur and founder of LBLK Publishing which specialises in Financial content. Len has been writing professionally on financial and business topics for 5 years before starting The Mortgage Bank.
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