Flexible mortgage guide

Here is a useful flexible mortgage guide. Flexible mortgages are loans which allow you to increase or decrease the size of your repayments within certain limits. This type of mortgage is relatively new.

Flexible mortgages come in all shapes and sizes. The most basic flexible mortgage runs along similar lines to a standard mortgage but with a few extra facilities such as the calculation of daily interest, the ability to make underpayments, overpayments and payment holidays.

The interest rate can be discounted, fixed, capped or variable, but has the big advantage that it is calculated daily or monthly instead of annually. This means that any capital repayment of the loan will affect the interest charged on the outstanding balance immediately. By making regular overpayments, the interest saved on the mortgage over the term can be quite significant.

Interest is usually calculated on a daily basis, so as soon as you have made a payment you are reducing the interest payable. By having the ability to make further payments means that by just paying a little extra every month could save you a tidy sum in interest costs.

Also, most lenders will allow funds to be drawn from the account up to the original mortgage balance or even allow payment holidays.

Some flexible mortgages will allow you to withdraw sums you have overpaid into your mortgage account to help deal with emergencies.

Being able to do this may help you cope with the changes in your income or spending, and to reduce your outstanding commitments without penalty if you get a bonus.

Many self employed people whose income varies from one month to the next find these products helpful. They can make overpayments when earnings are at the annual peak, and cut their payments when earnings fall again.

Flexible mortgages are most suitable for people who have irregular incomes, or who are expecting a period of reduced income, or would like to reduce their mortgage more quickly.

But having a flexible mortgage is not just about repaying your mortgage early. It's also about tailoring your mortgage to suit your lifestyle. All flexible mortgages allow overpayments and most will allow you to make underpayments when finances are tight. They may even allow you to take repayment holidays – a complete break from making payments as long as a reserve amount of money is in your account.

For example, if you are self-employed or work on short-term contracts, there's a good chance your ability to repay will vary. With a flexible mortgage you can overpay when cash comes in (and save money on interest payments on the reduced amount) and reduce your payments or re-borrow some cash when you have bills to pay or when you are in-between jobs.

Flexible mortgages may also suit you if you're about to have children. For example, if one of you is going to take a career break to bring up children, a flexible mortgage can be used to reduce the financial strain over this period of lower income and higher expenditure.

Flexible Mortgages are sometimes not available to some customers. For example, those with an adverse payment history, those on DSS benefits, those wishing to acquire property which is not their main residence.

Flexible mortgages may not be for everyone. It all depends on how you use the features of a flexible loan. Nothing comes free, and flexibility costs – and while flexible rates have come down in the last few years, they still can't compete with the cheapest discounts being offered on standard mortgages. This is because flexible loans were designed for the longer term, so to get the best use out of them you need to hold them for the longer term and use all the features they offer.

The most common requirement people have with a flexible mortgage is simply the ability to make penalty free overpayments. If this is the only flexible feature you want, a penalty-free mortgage will be just as suitable as a flexible mortgage and so you should consider both options.

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