- Overpayments You can pay off your mortgage more rapidly by making regular overpayments or by paying off ad hoc lump sums without incurring any redemption penalties. Flexible mortgages recalculate your outstanding mortgage balance on either a daily or monthly basis, so your interest payments immediately adjust to any over payment.
- Underpayments You can reduce your regular mortgage payment or even take a complete payment holiday without being in default. There will be conditions attached to this option. For example, you might have to have built up a reserve of overpayments before being allowed to underpay. Also, underpaying increases your outstanding mortgage balance, and there will usually be a ceiling on the overall amount you can borrow (for example, 90 per cent of the value of your home).
- Further loans You can withdraw extra lump sums from your mortgage account to be used for any purpose, without going through the formality of applying for a new loan. Once again, there are usually conditions. For example, you may have to have built up a reserve of overpayments against which you can borrow. And there will be a ceiling on the overall amount you can borrow through the original mortgage plus any subsequent loans.
In response to the advent of flexible mortgages, many lenders have either stressed or improved the flexibility of their traditional mortgages. For example, at least one lender now waives the normal redemption penalties where borrowers pay off up to 10 per cent of their mortgage balance a year. So before switching to a flexible mortgage, it could be worth checking what flexibility your existing lender can offer.
James Miller is a freelance writer specialised in consumer credit, covering topics such as how to deal with bad credit, mortgages and insurance. He aims to help people navigate the financial industry.
