There is no single, solitary, definition of a “flexible”, or “lifestyle” mortgage, since the degree of flexibility, and the facilities offered, vary from mortgage product to mortgage product. Generally speaking, however, mortgages described as “flexible” is designed to allow borrowers to make overpayments, or extra repayments, when money is available to do so, and to make underpayments, or, indeed, no payments at all, for a specific period – in the form of a payment break, or “holiday” – when the reverse is true.
Flexible Mortgages
Carefully selected, and operated, a flexible mortgage has the potential to greatly reduce the total amount of interest paid on a mortgage loan, and the overall term of that loan. Flexibility, and options, does, however come at a cost – in terms of a higher interest rate – so borrowers should examine, very closely, whether or not they are likely to take advantage of that flexibility. If not, then it is likely that a more competitive interest rate can be found elsewhere. It may even be that a standard mortgage is flexible enough, in some circumstances.
Following the court hearing and, obviously, dependent on the outcome, an order – the CCJ itself – may be issued, detailing how much is to be repaid, and whether this is required as a single payment, or monthly instalments.
An overpayment facility – allowing borrowers to repay more than the normal monthly repayment or to pay off a lump sum, or, perhaps, both – can be useful, allowing the total loan amount to be repaid more quickly, and reducing the total amount of interest paid. Bear aware, however, that an overpayment facility – of up to 10% of the total mortgage loan, per year – is also available with other types of mortgage.
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An underpayment, or payment “holiday”, facility – allowing borrowers to repay less than the normal monthly repayment, or to stop making repayments altogether, for a limited period (typically six, or twelve, months) – on the other hand, can be useful in times of financial adversity, such as that resulting from unexpected redundancy, or unemployment.
Many flexible mortgage products also offer a facility to borrow more than the mortgage amount originally agreed, at the same interest rate, and without the requirement for further approval from the mortgage lender, provided the total amount does not exceed a specified upper limit. It may also be possible to “borrow back” any previous overpayments.
In addition to what is generally referred to as a “conventional” flexible mortgage, two slightly different types exist, in the form of “offset”, and “current account” mortgages. An offset mortgage plan, for example, allows a borrower to hold a number of different accounts – perhaps, savings, credit card and personal loan accounts – as well as the mortgage account, itself, with the same lender. At the end of each month, the total assets, and liabilities, are calculated across all of the accounts. A current account mortgage is similar in design, although, in this case, a mortgage, and current account are usually combined into one, single account.
Advantages
Flexible mortgages are likely to prove most advantageous, fairly obviously, to those borrowers who are in a position, and wish, to take advantage of the features – the self-employed, for example, or anyone else that has a variable, or irregular, income.
In many cases, interest on a flexible mortgage is calculated daily, as opposed to monthly, or yearly, in other mortgage products. This means that, when a repayment is made, the total amount outstanding, on which interest is calculated, is reduced almost immediately (or, at least, within a day), which can result in significant savings.
“Borrowing back”, from money already overpaid on a flexible mortgage loan, can be a cost-effective alternative to a personal loan, as the APR, or “Annual Percentage Rate”, of a flexible mortgage is typically a percentage point, or two – or possibly more – lower than that of a secured personal loan of equivalent value.
Many flexible mortgage products have no penalties for early redemption, so a mortgage can be repaid early, by making overpayments, are changed to a different product with the same, or a different, lender, at any time.
Disadvantages
On the downside, borrowers who do not actually need the level of flexibility, and features, of a typical flexible mortgage, may find that a less flexible mortgage – with a correspondingly lower interest rate – is a less expensive, and therefore more attractive, alternative. A similar comment applies to borrowers who are seeking only to repay a mortgage loan at the earliest possible opportunity, insofar as cheaper alternatives are likely to be found elsewhere.
On the other side of the coin, regular underpayments, or payment breaks, may result in the repayment period of a flexible mortgage being extended beyond the term originally agreed. In addition, a flexible mortgage may not offer the same level of stability as a standard, fixed rate mortgage, and a rise in interest rates may be reflected in the level of monthly repayment required.
Bear in mind, too, that penalty charges for early redemption may apply to a flexible mortgage, at least for the duration of any initial, “incentive” period, and that a booking, or arrangement, fee may also be payable.
Conclusion
Flexible mortgages allow borrowers scope to adjust monthly repayments, up, or down, in accordance with their ability to pay, and to take a certain degree of control over their finances. The degree of flexibility does vary, in some cases quite widely, from product to product, so it is wise to carefully examine the terms and conditions of any flexible mortgage offer, to establish, for example, that the mortgage can be cancelled, without penalty, and that interest is actually calculated on a daily basis. If you are in any doubt as to whether a flexible mortgage is the mortgage product most appropriate to your personal circumstances, you should consult an Independent Financial Advisor (IFA), for impartial, professional advice.
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