Getting yourself a spot on the property ladder is one of life’s most difficult prospects. It requires a substantial amount of time and dedication for you to save up an adequate mortgage deposit, let alone find a suitable property and attached mortgage package which is right for you. However, people tend not to discuss how difficult it can be to make those mortgage repayments each month as much. Mortgages aren’t cheap, they impress a great deal of financial stress, especially in today’s context of a cost-of-living crisis.
Fortunately, one of the defining features of the mortgage market is that there is a lot of variance regarding the products which comprise it. Indeed, whatever your personal situation or financial circumstances, there’s bound to be a housing solution that’s correct for you out there. Particularly where repayments are concerned, there are those mortgage types which afford you with a marked level of flexibility, as opposed to being unapologetically rigid. What we’re talking about are aptly known as flexible mortgages, and such a mortgage could circumvent any barriers acting against you securing a house you can comfortably afford.
This being said, it remains that there are complications inherent in every type of mortgage, those which make the entire process a frustrating one, rather than a satisfying achievement to be had. Likewise, the amount of options open to you may be equally confounding and leave you undecided on the matter. Making the right mortgage choices is understandably tricky, especially while you’re trying to keep up with everything else in your life. It’s for this principal reason why we strongly suggest that you hire the services of an expert mortgage broker to thoroughly assess your case before coming to a decision designed to wholly benefit you. We at The Mortgage Genie have assisted plenty of our UK clients by getting a flexible mortgage for them, including handling the, often complex, paperwork. If you’re interested in saving yourself the usual hassle that comes with a mortgage by joining our success stories, then be sure to reach us at 01915809890 today.
Though, despite what we can do for you, we still recommend that you assimilate everything there is to know about flexible mortgages. So that you can comprehensively inform yourself on the subject, we’ve put together this piece which covers all the important details. By reading further, you’ll thereby have a better understanding on whether this mortgage type is suitable for you. We’ll go over:
What is a Flexible Mortgage?
Simply put, the term flexible mortgage refers to a type of mortgage that provides you with more options around repayment. For instance, it can be beneficial for some people to either overpay or underpay on their mortgage loan for a given month in order to save money in interest.
Flexible mortgages offer a degree of freedom for people to pay back more when they can afford to and when it’s shrewd to do so, and vice versa if someone feels the need to reduce or pause their repayments. Although, not all lenders will allow you to increase your repayments or make additional repayments, and might charge you to take such a repayment plan. Different mortgage providers have their own definitions for flexible mortgages, so it’s vital to be sure what it is you're being offered exactly.
How do Flexible Mortgages Work?
As per the name, flexible mortgages work in a number of ways, with the viability of each facet varying from lender to lender. Albeit, there are some discernible common options such as:
Fairly evidently, overpayments are where you pay more than your standard monthly repayments, whether in lump sums or regular payments. Overpaying on your mortgage loan helps in clearing your balance quicker, effectively reducing the amount you spend on interest. Notwithstanding the benefit of this, the caveat is that the majority of lenders will only let you make an overpayment of 10% each year, and may charge you for exceeding the cap.
On the flipside of overpayments, flexible mortgages come with the option for you to underpay on your usual monthly repayments for a set amount of time if your lender is happy to oblige. Underpayments are useful if you’ve experienced an income change or need money for a large expense. Generally, lenders only allow for underpayments if you’ve previously overpaid on your mortgage loan and kept up with the mortgage for some time.
Select lenders might enable you to take a payment holiday, this is where you take a break from making your typical monthly repayments for an agreed period of time. Payment holidays span from between one to six months, but interest will continue to accrue over this ‘holiday’, resulting in the cost of your monthly repayments increasing throughout the overall mortgage term. That being said, requesting a payment holiday could be handy in relieving financial stress if your income unexpectedly drops, like in cases of job loss or extended sick leave. Full pre-agreement and understanding of potential consequences should be obtained prior to requesting or applying for a holiday, as some lenders would class the holiday period as ‘arrears’ if their mortgage wasn’t truly ‘flexible’ at the outset. Therefore, for some, if a payment holiday was obtained then there is a chance your credit file and score would be negatively affected.
Daily interest calculations
This feature allows for the interest you owe to be calculated daily. As such, any payments you make towards your loan, including both underpayments and overpayments, are immediately deducted from the loan’s total amount for the purpose of calculating interest. In effect, daily interest calculations are a much cheaper way of calculating mortgage interest, as opposed to monthly or yearly calculations. For example, if you were to overpay, the cost of your following payments would directly decrease.
The drop-lock feature applies to those with a tracker mortgage, it lets them switch their mortgage to a fixed rate without needing to pay an early repayment charge (ERC) or remortgaging with another lender. Essentially, allowing someone to lock and secure a new product when the interest rates are low. Similarly, there’s what’s known as a ‘switch and port’, where you can port your mortgage over to a new property without applying for a full new mortgage if you’re moving home.
Flexible mortgage savings account
Also called a reserve account, some lenders will offer you the ability to make overpayments into a flexible mortgage savings account. This implies that you can withdraw the money later if your financial situation changes or you want a new expense, i.e., these accounts allow you to borrow back what you initially paid. In effect, you save on interest payments by overpaying while having a backup savings account for an added sense of peace of mind. A common problem with mortgage overpayments is that you can’t take the money back when you need it, such saving accounts solve this issue.
Types of Flexible Mortgages
Just as there are many options for how a flexible mortgage can function, there are various different types of flexible mortgages too.
Flexible repayment mortgages
The vast majority of mortgages on the market are repayment mortgages. This type of mortgage has you pay back a portion of your original loan, as well as any added interest each month. At the end of the mortgage term, you’ll have repaid the entire debt alongside the interest in full.
Flexible offset mortgages
Flexible offset mortgages come with the feature of ‘offsetting’. Offsetting is where you have your mortgage loan linked to a savings account, from there you can ‘offset’ the interest you pay on your mortgage to your account’s cash balance. For instance, if your current mortgage loan stood at £200,000, but you had £50,000 in savings, then you’d only be charged interest on £150,000.
Flexible tracker mortgages
The interest rates for tracker mortgages follow a financial indicator, this often being the Bank of England Base rate. Ultimately meaning, that the determined interest you pay as part of your monthly repayments will fluctuate, whether up or down. Though, if your tracker-rate mortgage includes the aforementioned drop-lock feature, then you will be able to switch to a fixed rate at any given point.
Flexible fixed-rate mortgages
As with all fixed-rate mortgages, flexible fixed-rate mortgages have your interest rate and monthly repayments remain the same for the whole mortgage term, that is, typically over a period of between two-ten years. In general, fixed-rate mortgages are more expensive than their counterparts, but come with the factor of security in regard to monthly repayments. When your fixed-rate mortgage term ends, you’ll begin paying your lender’s, relatively expensive, standard variable rate. Fixed-rate mortgages often come with fees if you choose to overpay on your loan.
Flexible buy-to-let mortgages
Most buy-to-let mortgages are interest-only mortgages, meaning that the amount of your loan stays the same throughout the entire mortgage term, with the borrower paying off interest on a monthly basis. A flexible buy-to-let mortgage allows you to make optional capital repayments so as to decrease the total loan amount. Thus, reducing the monthly interest you’re required to pay.
Benefits of Flexible Mortgages
Flexible mortgages help you to pay off your mortgage quicker, entitling you to considerable monetary savings.
Flexible mortgages intrinsically come with more freedom concerning monthly repayments, namely, you can overpay, underpay, or take a ‘holiday’.
Flexible mortgages are a good choice for the self-employed, i.e., those whose income is changeable.
Disadvantages of Flexible Mortgages
Flexible mortgages are likely to have limits on how much you can overpay or underpay.
Lenders who offer flexible mortgages all have different definitions, and therefore different terms and consequent applied restrictions.
Flexible mortgages usually have higher interest rates, relative to conventional fixed-rate mortgages.
Will I be credit checked if I apply for a flexible mortgage?
Simply put, yes, all lenders carry out a hard credit check as part of their eligibility assessments to make sure that you meet their criteria. This will be carried out so that they can view your credit score, as well as to see if you’ve ever had bad credit, a court county judgement (CCJ), an IVA, or if you’ve ever failed to meet payday loans or filed for bankruptcy in the past. Any such instances on your report will impress a negative influence on your application, even causing lenders to reject you. However, if these occurred more than six years ago and you have a sizable mortgage deposit, then their severity will be lessened.
It’s notable that hard credit checks leave a mark on your profile. As such, if you want to get a notion of your current eligibility before you apply for a mortgage, you can use our free credit check tool (£14.99 per month after the free 30-day trial). Using it will help you to seek out any possible mistakes or fraudulent activity on your profile, so that you can deal with such problems as soon as possible. The trial and subscription can be cancelled at any time.
How a broker can help you to choose the best flexible mortgage
As you can gauge, there is a vast array of options when it comes to flexible mortgages, making it difficult to compare them and determine the choice that’s right for you. For this reason, if you think you’d benefit from a flexible mortgage, then it’s best practice to have a mortgage broker at hand to assess your case.
Working with a mortgage broker who specialises in flexible mortgages will help with identifying the features you want in a mortgage, navigate lenders’ variable criteria, warn you of any extra fees and charges which might factor into specific products, and discern the best interest rates available to you. Speaking to a broker has the potential to save you thousands in the long run, as well as a great deal of time, virtually negating any cost expended on the service.
Here at The Mortgage Genie we have comprehensive knowledge on how to get a mortgage and are dedicated to helping people secure loans of all types, including flexible mortgages. We hope that this article has given you a clearer perspective on flexible mortgages by answering the salient questions and revealing the pressing details.
Each day we help a growing number of people to achieve housing happiness by finding a mortgage deal that’s right for them, one tailored towards their personal situation and individual circumstances, all while supporting them through every step of the way. If you require a team of expert mortgage brokers, then be sure to get in touch with us at 01915809890 and we’ll get started on a solution that has you owning your dream house! And why not see how much you could borrow up to today by using our mortgage calculator?