If you can afford to pay back your mortgage in less time than the full term, you could save a lot of money in interest. However, not all lenders allow you to increase your repayments, and some will charge you to overpay.
So, if you’d like the freedom to pay back more when you can, you should consider a flexible mortgage. These allow you to increase your repayments or make additional repayments. In some cases, they also let you reduce or pause your repayments. Read on to learn how they work.
We’ll cover the following topics…
What is a flexible mortgage?
This term describes any mortgage with features that give you a greater degree of flexibility regarding repayment. The exact features it includes differ between lenders and products. They might include:
Overpayments can refer to either increasing your regular monthly repayments or paying an optional lump sum in addition to your monthly repayments. This reduces the time it will take to pay off your mortgage and the interest you’ll pay in total.
Mortgage Overpayments Calculator
This calculator can show you how much you could save and what your new mortgage payments will look like if you were to make overpayments as a lump sum, monthly amount or both.
Your current monthly repayment is:
What your mortgage repayments will look like based on your overpayments:
Potential mortgage term reduction:
Amount of interest you could save:
Now that you have a rough idea of how overpayments will affect your mortgage deal, make an enquiry to speak to a broker for bespoke advice about whether this is the right option for you.
Underpayments allow you to temporarily reduce your regular monthly repayments if you are already ahead of schedule on paying off your mortgage.
A payment holiday is the option to skip a monthly repayment or several monthly repayments (usually up to six). Most lenders will only allow this if you have previously overpaid. Since interest will still accrue throughout the payment holiday, your repayments might be a little higher when you resume them.
Daily calculated interest
This feature means that any repayments or overpayments you make are immediately deducted from the amount you owe for the purposes of calculating interest (whereas, with most conventional mortgages, they are only deducted monthly or yearly). This means you’ll pay less interest overall.
Some lenders will allow you to make overpayments into a reserve account, meaning that you still have the option to withdraw that cash later if your financial situation changes. This offers all the advantages of overpayments but with additional peace of mind.
This feature allows you to link your mortgage to a savings account, and “offset” the cash balance against the balance of the mortgage. For example, if your savings balance is £40,000 and your mortgage balance is £100,000, you’ll only be charged interest on £60,000 of the offset mortgage.
Our calculator below will help illustrate how this works, based on your own personal circumstances.
Offset Mortgage Calculator
This calculator shows you how your mortgage payments could look if you choose an offset mortgage and how much you could potentially save with this product type.
Without offset savings:
With offset savings:
Now that you have a rough idea of how much you could save on interest by offsetting your mortgage, you should speak to a specialist broker for bespoke advice about offset mortgages and access to the best deals that you qualify for.
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How to compare flexible mortgage deals
Since there are many different flexible mortgages on the market and they don’t all offer the same features, here are three tips to help you compare them:
Identify the features that matter to you
Most people who choose flexible mortgages are looking for the option to make overpayments and to choose how much they overpay. So, you’ll want to check how much the different lenders allow you to overpay each year without an additional fee.
Then, if you’re looking for other features (such as a reserve account that allows you to later withdraw money from your overpayment pot if you need it), make sure to look specifically for lenders who offer these, as not all of them do.
Look out for additional charges
If you only look at the initial rate of different mortgages, you won’t have a full understanding of the comparative costs. You also need to consider the standard variable rate that applies after the initial period, and other charges, such as an arrangement fee, valuation fee, and exit fee.
If your lender charges you to make overpayments above a certain level (e.g. more than 10% of your mortgage balance), you’ll need to factor that into your repayment plans to be sure that you’re still saving money over the long term.
Speak to a broker
It’s always sensible to speak to an expert before making a big decision like choosing a mortgage. They can tell you in far more detail about the advantages and disadvantages of the different flexible mortgage features, and which ones you truly need, based on your financial situation.
They will also identify the best rates available to you, and compare the true cost of the mortgage, including additional charges, so you can be confident you’re not paying more than you need to.
Lenders and rates
Many lenders offer flexible features but don’t necessarily advertise their product as a flexible mortgage. Here are some examples:
- Together Mortgages and Norton Home Loans offer unlimited overpayments
- Suffolk Building Society allows fee-free overpayments of up to 50% of the original loan
- Bath Building Society and Metro Bank allow overpayments of up to 20% of the original loan, without a fee
- Barclays, NatWest, and Yorkshire Building Society all offer offset mortgages
- Scottish Widows offers a flexible mortgage that allows overpayments, offsetting, and further advances
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Flexible lifetime mortgages
A flexible lifetime mortgage is an entirely different product category from flexible mortgages. Lifetime mortgages are a form of equity release. They allow people over 55 years of age to access their property wealth in the form of a cash loan with no repayments in their lifetime.
With a flexible lifetime mortgage, you can choose to borrow small amounts at different times (rather than one lump sum at the start of the mortgage). Some lenders also allow you to make partial repayments on the loan during your lifetime. This gives you more control over how much you borrow and how much wealth you retain to pass on to loved ones.
Flexible buy-to-let mortgages
Buy-to-let mortgages are typically interest-only mortgages, meaning that the loan amount remains the same throughout the term of the mortgage, and the borrower only pays off the interest on a monthly basis. The complete loan is then repaid at the end of the term, using a repayment vehicle set up when the loan was originally agreed.
A flexible buy-to-let mortgage would allow you to make optional capital repayments to reduce the loan amount, which would, therefore, reduce the monthly interest you need to pay. Some lenders may allow you to increase your borrowing again later if you need to access more capital.
Get matched with a flexible mortgage specialist
To find out about the flexible features that a lender offers, you’ll usually need to speak to a broker. Some brokers specialise in flexible mortgages and can give you in-depth information and personalised advice on this topic specifically.
If you’d like us to connect you with one of these specialists, try our broker-matching service. It’s a convenient and free way to find a broker with the exact experience you need and set up a no-obligation chat. To try it today, just call 0808 189 2301 or make an enquiry online.
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A flexible drawdown mortgage is an equity release product. Like other lifetime mortgages, it allows you to secure a loan against your home that will be repaid after you die (usually by selling the property).
With this type of mortgage, you can withdraw small amounts when you need them, rather than taking out the loan as one larger lump sum. So, you don’t need to guess how much money you’ll need, you can wait and see.
You’ll only pay interest on the cash you’ve withdrawn, so you will also accrue interest more slowly and there will be less to repay at the end of the mortgage term (compared with if you’d withdrawn the full amount at the start of the loan agreement).
Flexible mortgages are available as either fixed-rate mortgages or tracker mortgages. Fixed-rate mortgages have fixed repayments for a certain period, while the repayments for tracker mortgages can increase or decrease, usually in line with the Bank of England base rate.
With a flexible tracker mortgage, it may be possible to switch to a fixed-rate mortgage without paying a fee. This is a feature known as “drop-lock”.
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