Mark Tiernan, What is a Flexible Mortgage?

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by MarkTiernan @ 2007-11-29 - 11:06:53

'Flexible mortgage' is a term that's used a lot, but what exactly does it mean? A flexible mortgage allows the borrower to make extra repayments when they have the extra money and even reduce or skip payments should the need arise.

A flexible mortgage allows you to make extra payments to reduce the amount outstanding on your mortgage thereby reducing the interest you're paying or pay off your mortgage earlier than planned.

Imagine being able to save money in mortgage interest, or borrowing enough money pay off your credit cards or personal loans, or buy a new car at a low rate of interest. That's exactly what flexible mortgages enable you to do.

Flexible mortgages allow you to save money by cutting the length of your mortgage term. You can also buy yourself more time when money is tight by reducing your monthly repayments or increase you mortgage if you need to borrow money.

'Flexible mortgages', also known as 'Australian mortgages' are fast becoming the most popular way of taking out a new mortgage.

Flexible mortgages are designed for people who want the option to vary their mortgage payments to match changes in their cash flow. To varying degrees, they let you underpay, overpay, take payment holidays, pay off lump sums and borrow back overpayments.

Flexible mortgages come in various guises but they mainly allow you to make extra lump sum payments, borrow back money, allow you to take repayment holidays and also allow you to make underpayments. Some flexible mortgages will double up as a current account, where your salary is paid in monthly and so you are in effect paying off a huge overdraft.

Unlike some traditional loans that still charge mortgage interest on an annual basis, fully flexible mortgages calculate interest daily, which means that any overpayments you make are immediately credited against your loan, thus reducing your interest costs. This gives you the flexibility to manage your mortgage payments to suit your cash flow needs as your circumstances change.

A Flexible Mortgage allows you to repay capital early, take back some cash you have paid in and postpone payments. Some are run as substitutes for current and savings accounts, so all your money is working to minimise interest on the mortgage.

If you are looking for flexibility in the current mortgage market, there are two important facts to bear in mind. First, the majority of flexible mortgages tend to charge higher rates than those available on more conventional mortgage deals.

Secondly, there is little difference between mortgages marketed as fully flexible and conventional mortgages which are offering an increasing number of flexible features. So unless you want to use the full range of features offered by a flexible mortgage, you may find the level of flexibility you are after on a conventional deal at a much better rate.

Generally you can choose to have a variable or discounted rate or sometimes a combination a variable and fixed rate. By choosing to take part of your mortgage at the fixed rate allows you the flexibility to make overpayments to the variable rate option during the fixed rate period without any penalties.

A truly flexible mortgage should have all of the following options:

Interest is calculated at least monthly, preferably daily.

Overpayments are allowed penalty free.

You can take payment holidays.

You can make underpayments.

You can draw down any unused facility.

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