Published: 29/01/2019

At a glance

  • An ordinary mortgage with a range of extra flexible features bolted on.
  • May allow you to make overpayments, underpayments or take payment holidays.

A flexible mortgage is just a normal mortgage with some flexible extra features bolted on. The features and how they work will differ between providers, so it's important when you're searching for a mortgage to find one that has the facilities you need.

Interest calculated daily

Having interest calculated on your mortgage every day is the least expensive way of calculating mortgage interest (in comparison with the other methods of calculating interest, such as monthly or yearly). That's because any payments you make are immediately taken off the amount you owe – reducing the total amount which you will pay interest on.

This is particularly good for a flexible mortgage, as any overpayments you make will make a difference to your mortgage balance straightaway.

Overpayments

Overpaying means that you can make an additional payment, over and above your normal monthly repayment. Usually you can make your overpayment either as a lump sum (for instance, using an inheritance to pay £10,000 off your mortgage) or as a regular amount. Regular overpayments can be set up as Standing Orders or by increasing the Direct Debit the lender uses to take your mortgage payment. As overpaying is optional, you can stop making regular overpayments whenever you choose.

Overpaying has the effect of reducing your balance and saving you heaps of interest. It can also mean you're able to finish paying your mortgage a lot earlier.

If you have an introductory fixed or tracker rate deal, you may only be able to overpay a certain amount each year (typically 10% of the mortgage balance). If you decide to overpay by more than this, you may have to pay an Early Repayment Charge.

Payment holiday (or payment break)

Occasionally you may want to have the flexibility in your mortgage to take a payment break, such as for a particularly expensive Christmas, while you go on a three-month trip around Australia or the arrival of a new baby.

Some mortgages offer the option of taking a break from payments, which can be anything from one to six months. The length of the break you are allowed can vary so it's important to check first.

It's also worth noting that you will still need to apply to take a payment holiday. 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.

Although you're taking a payment break, your mortgage doesn't. Interest will continue to be charged while you are taking your break, so you could face higher payments when your repayment holiday ends.

Underpayments

In the same way as you can overpay, you may be allowed to underpay. This means you can make a payment lower than your normal monthly amount for a set period.

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.

Borrow back

When you overpay, you may not want to lose the use of that money in the mortgage. 'Borrow back' therefore allows you to withdraw money that you've previously overpaid to use for whatever you want.

While your money is overpaid in the mortgage you get the benefit of paying less interest, but also have the option to take your money out of the mortgage to pay for your wedding, for example, or for a new conservatory.

Portability

A mortgage with a portability feature means that if you move you can take your mortgage over to the new property (subject to underwriting checks and a fee). Because you can take your existing borrowing to your new property, it means you wouldn't have to pay an Early Repayment Charge or remortgage to a new deal.

However, if you reduce your borrowing when you move to your new place you may well need to pay an Early Repayment Charge on what you repay.

If you need to borrow more, the additional amount will probably be charged at a different interest rate to your original loan (so you could end up with two "parts" to your mortgage).

Droplock (or "Switch & Fix")

Droplock, or "Switch & Fix", is a feature that may be offered on a tracker rate mortgage. This allows you to switch your mortgage to the security of a fixed rate, without paying any early repayment charges or going through a remortgage to another lender.

By having the option of "locking in" to a fixed rate later, you can take advantage of a low tracker rate but have the flexibility of protecting your rate (by fixing it) should you need to.

Pros and cons of flexible mortgages

  • Often able to make overpayments to pay off the mortgage faster or borrow against this later.
  • Lender may offer ‘mortgage holidays’ enabling you to take a break from repayments (subject to your lender’s agreement).
  • Possible option to switch to a fixed rate without early repayment penalties or having to remortgage with another lender.
  • Interest will continue to be charged during any ‘mortgage holidays’ meaning your payment will likely rise at the end of it.

Moneyfacts tip

Moneyfacts tip Leanne Macardle

Overpaying and borrowing back can be an efficient way of saving, since the amount of interest you could save on your mortgage is likely to be greater than you could earn if you put your money into a savings account.

Mortgage calculator

Our mortgage calculator helps you to see how much your mortgage might cost you each month.

Our how much can I borrow calculator gives you a range of how much a lender might consider lending you under a mortgage. This calculation is only an indication only.

Read our How much can I borrow for a mortgage guide to find out more about what can impact your potential sum of borrowing.

Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

woman holding up paper question mark

At a glance

  • An ordinary mortgage with a range of extra flexible features bolted on.
  • May allow you to make overpayments, underpayments or take payment holidays.

Cookies

Moneyfacts.co.uk will, like most other websites, place cookies onto your device. This includes tracking cookies.

I accept. Read our Cookie Policy