Overpayments
• Get rid of the debt as soon as possible or save money in the long run by making overpayments.
• A benefit if you are self employed and your income varies from one month to the next, with a flexible mortgage you can increase or decrease payments to suit you situation
Underpayments
• Not only do you have the ability to make overpayments with a flexible mortgage, you can also make underpayments. This may be useful for those times where you have additional expenditure.
• With this option, most lenders insist that you have previously overpaid in order to be able to make any underpayments.
Take a break
• In some cases where you have made substantial overpayments, you could opt to take a repayment ‘holiday’.
• This option is ideal if you are planning to go traveling or if your financial circumstances change temporarily.
• Some flexible mortgages also allow you to withdraw sums you have overpaid into your mortgage account for personal emergencies.
Interest and charges
• Fully flexible mortgages calculate interest daily, meaning that any overpayments you make are immediately credited against your loan and reduce your interest costs.
• Many providers now offer tracker rates, so you can have the elements of a flexible mortgage, while following the rise and fall of interest rate movements.
• Other traditional mortgage lenders charge for repaying your mortgage early, but with a flexible mortgage you are free to overpay and underpay without financial penalties.
• Beware, because these mortgages usually charge higher interest rates than standard home loans, but the great advantage is that they potentially allow you to pay your mortgage off years earlier than originally planned.
• Remember to compare with a standard mortgage – some will allow you to pay off lump sums without penalty.
Save and spend
• Some are run as substitutes for current and savings account, so you can pay your monthly salary into the account and reduce the outstanding amount and the interest payments.
• For the rest of the month you can use the account for day-to-day expenses and direct debits.
• Before you take out a flexible mortgage, be aware of how you handle your finances. If you are inclined to raid your savings on a regular basis, this type of mortgage probably won’t suit you.
• The advantage of a flexible mortgage is that all money is controlled within one account and savings can be used to offset the debt.
• Move your regular direct debits and standing orders to the end of the month so you benefit from keeping the money in your account, therefore paying less interest.
Offset option
• You can have a number of accounts with the same lender, including savings, a personal loan and a credit card and when the lender calculates how much interest you owe on your mortgage, these are taken into consideration.
• Any savings reduce the amount you owe and you will not be charged income tax on the interest paid on the savings within an offset account.
• A disadvantage is that the savings might not be enough and therefore offsetting your mortgage would be pointless. But, as a rule of thumb if your savings are at least 20 per cent of the total mortgage loan, then consider offset mortgages.
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