What is a flexible mortgage?

A flexible mortgage is just a normal mortgage with some additional flexible features bolted on, and in many cases they’re not even advertised as being “flexible”. The features and how they work will differ between providers as well as individual mortgage products, so when you’re searching for a new deal it’s important to find one that has the facilities you need.

How do flexible mortgages work?

Essentially, flexible mortgages work in the same way as any other mortgage. They can be fixed, variable or tracker and can come in a variety of terms, but just offer slightly different features – particularly around payment options. Every provider views flexible mortgages differently and as such will offer different options, but some of the most common features include:

Overpayments

Overpaying means that you can make an additional payment, over and above your normal monthly repayment, either as a lump sum (such as using an inheritance to pay a chunk off your mortgage) or as a regular amount. Regular overpayments can be set up as Standing Orders or by increasing your Direct Debit, and as overpaying is optional, you can stop making these extra payments whenever you choose.

By overpaying you’ll be able to reduce your balance and save a lot in interest, and could potentially pay off your mortgage a lot earlier. Just make sure to check if there are any limits on overpayments. Although it’s a “flexible” feature, most mortgages (at least those with an initial term) won’t let you overpay by more than 10% of the outstanding balance each year without an early repayment charge. There are some flexible mortgages that will allow you to exceed this (such as in the case of an inheritance), but always make sure you’re not exceeding any limits.

Borrow back

Usually, once you overpay, you’ve lost the use of that money as it’s now part of your mortgage. However, some mortgages offer a borrow back feature, which allows you to withdraw money that you've previously overpaid to use for whatever you want, which means you may not need to lose access to it completely.

This can be a particularly valuable feature if you’re suddenly faced with a financial hit that you weren’t expecting and haven’t budgeted for, such as if you needed to replace the boiler or get a new car. Your overpayment would no longer be used to reduce your mortgage interest payments, but you could access it in an emergency.

Underpayments

In the same way that you can overpay, you may be allowed to underpay as well. This means you can make a payment lower than your normal monthly amount for a set period. However, this will be subject to prior approval by your lender, and in nearly all cases will depend upon you previously having overpaid enough to cover the portion of the payment you are going to miss.

Payment holidays

Occasionally you may want to have the flexibility in your mortgage to take a payment break, such as due to a drop in income, if you’re going travelling or the arrival of a new baby. Some mortgages will be able to accommodate this by allowing you to take a break from payments, usually from one to six months.

Note that the length of the break you’re allowed can vary, and you’ll still need to apply to take a payment holiday – there’s no guarantee. Your acceptance may depend on how long you have had the mortgage for, or it may be subject to you previously having overpaid enough to cover the payments you will miss.

It’s important to bear in mind that although you're taking a break, your mortgage doesn't. Interest will continue to be charged, so you could face higher repayments when your payment holiday ends.

Switch mortgages

If you’re on a variable or tracker rate mortgage, you may be able to switch to a fixed rate without paying any early repayment charges or needing to remortgage to another lender. This is sometimes known as droplock, or Switch & Fix.

This can be ideal if you’re worried about interest rates increasing, as by having the option of "locking in" to a fixed rate later, you can take advantage of a low tracker rate initially but have the flexibility of being able to protect your rate (by fixing it) if variable rates were to rise dramatically.

Offset mortgages

Offset mortgages can save you interest by “offsetting” the value of any linked savings against your mortgage balance, thereby reducing the amount you’re charged interest on. It can be a great option for those who don’t need to earn an income from their savings and can help you reduce your monthly repayments or even shorten your mortgage term. Read our guide on offset mortgages to find out more.

Portability

A mortgage with a portability feature means that if you move you can transfer your borrowing to the new property (subject to underwriting checks and a fee), which means you wouldn't have to pay an early repayment charge or remortgage to a new deal.

However, porting a mortgage becomes more complex if you reduce your borrowing, or if you needed to borrow more, which could result in a second mortgage to cover the difference (often at a higher rate). You can find out more in our guide to porting a mortgage.

Daily interest

Flexible mortgages will typically calculate interest daily. This is the least expensive way of calculating mortgage interest (in comparison with the other methods of calculating interest, such as monthly or yearly) because any payments you make are immediately taken off the amount you owe, reducing the total amount that you will pay interest on. As a result, any overpayments will make a difference to your mortgage balance straightaway, so your repayments can reduce instantly.

Pros and cons of flexible mortgages

Can a flexible mortgage affect your credit score?

Applying for a mortgage – flexible or otherwise – will always involve a credit check and can potentially result in a small dip to your credit score, but this will only be temporary. On a larger scale, having a flexible mortgage itself won’t impact your credit rating, but how you manage it can – and this can have both positive and negative connotations.

For example, if you’re looking to make underpayments or take a payment holiday, make sure that this is properly approved by your lender, otherwise it could be classed as a missed payment and could result in a serious hit to your credit score. Similarly, make sure you always abide by any restrictions imposed and always keep up with your agreed payments, even if they’re lower or delayed, to ensure you’re staying within your terms.

On the flip side, making overpayments can have the opposite effect and has the potential to improve your credit score over time. This is because you’re reducing your overall debt levels quicker and are showing that you’re able to effectively manage your finances, proving your credit worthiness to potential lenders.

Is a flexible mortgage right for me?

A flexible mortgage may be right for you if:

• You want the flexibility of being able to alter your payments should your circumstances change.
• Your income fluctuates, which means you may be able to pay more some months and less in others.
• You think you may get a cash boost in the near future and want to be able to use it towards your mortgage (such as an expected inheritance or pay rise).
• You don’t mind paying slightly higher mortgage rates for added flexibility.
• Your credit score is good enough to be approved for flexible features.
• You want a variable rate now but with the peace of mind that you can fix if rates rise too much in the future.

As with all mortgages, it’s important to compare the options thoroughly to make sure you’re getting the right deal for your needs. You’ll need to check the terms of your preferred mortgage and bear in mind any additional fees that may be involved and always seek advice if you’re unsure.

Are flexible mortgages still available?

Yes, though they may not always be advertised as such. In many cases, a lender will simply offer a standard mortgage with a few flexible features included, which means it can be difficult to narrow down the best deals. This is where a broker can come in, as they’ll know which lender offers the features you’re looking for and can help you source the best mortgage rate accordingly. Speak to a broker today and see if you could benefit from a flexible mortgage.

Should I speak to a mortgage broker?

Mortgage brokers remove a lot of the paperwork and hassle of getting a mortgage, as well as helping you access exclusive products and rates that aren’t available to the public. Mortgage brokers are regulated by the Financial Conduct Authority (FCA) and are required to pass specific qualifications before they can give you advice.

Speak to an award-winning mortgage broker today