Mortgages – a flexible friend?

It might be some time since you took out a mortgage and your payments were no doubt designed to be affordable at the time. But if your circumstances have changed, maybe your mortgage should too and there are many flexible mortgage deals that allow you to take control. The thing is, as Moneyfacts analyst Julia Harris explains, that mortgage companies use different definitions of what a flexible mortgage really is. So it’s worth thinking about what might be included in a flexible mortgage.

Overpayment is a key indicator of flexibility. According to Moneyfacts, there are only five lenders who do not allow overpayments on any mortgage products, though some allow them only on selected products. Overpayments are usually restricted to around 10 per cent of the capital owed, with any payments over this level incurring an early repayment charge.

According to Moneyfacts, fully flexible mortgages allow underpayments, overpayments, payment holidays and charge interest daily or annually. Forty-nine per cent of lenders offer fully flexible products, though some will only allow underpayments and payment holidays up to the level of previous overpayments.

Current account and offset mortgages can be ‘the ultimate in flexible mortgages’, says Ms Harris, especially if borrowers can overpay without penalty. This could be a good option for anyone with spare savings. On a £130,000 mortgage over 25 years at 5 per cent interest ‘overpaying just £16 per month would knock a whole year off the mortgage term. That’s say the equivalent of going without one shop-bought sandwich meal per week. And if you could afford an extra £97.97 per month, this would reduce the mortgage term by a massive five years, saving you a whopping £22K in interest.’

Making additional payments could help consumers to manage their debt levels and even small overpayments could save thousands of pounds in interest, says the Moneyfacts analyst.