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Save Money with a Flexible Mortgage

Would you like a mortgage that allows you to make monthly overpayments when times are good and skip payments when money is tight? And what if you could borrow back your overpayments at the competitive mortgage rate of interest?

So called flexible home loans were once available only from a handful of smaller lenders, now several high street banks and building societies have jumped on the bandwagon.

The ability to overpay your mortgage without penalty can save you a fortune in interest. It's calculated that a monthly overpayment of £50 on a £100,000 repayment mortgage at 7.2% interest would save the borrower £26,540, cutting the 25 year term by four years and five months.

But are all flexible mortgages the same – and are they suitable for every borrower?

A truly flexible mortgage allows you to overpay, underpay, take payment holidays and borrow back any overpayments, with few or no restrictions. It also calculates interest daily and some come complete with a cheque book or cash card.

The daily calculation of interest is important with a flexible loan. If you make an overpayment, you want the amount to be credited to your account immediately, thereby reducing the debt and the interest owing.

Bank of Scotland, First Active and Scottish Widows Bank are among the lenders that offer fully flexible facilities, including bank accounts. The Woolwich Open Plan is made up of a normal mortgage account with a separate reserve facility. You can borrow from your reserve at the standard mortgage rate using a Visa Gold charge card which they will supply.

Today’s working patterns make it difficult for some people to stick to a rigid mortgage payment schedule. The self-employed, for example, may have an erratic income, which is best suited to a flexible mortgage. People who are paid bonuses can also use the money to make substantial overpayments and reduce their debt. Most flexible mortgages allow you to borrow back money that has been overpaid charging the normal mortgage rate.

Low inflation and relatively low interest rates have also boosted the popularity of flexible mortgages. When inflation is low, the real value of your mortgage debt is preserved, so it makes sense to pay it off more quickly. It is also a good way to save. A higher-rate taxpayer would have to earn interest of more than 10% to make saving more cost-effective than paying off a mortgage debt.

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Buying a home and mortgages can be confusing. Check our mortgage glossary to find out about any term you are unsure of. Mortgage Glossary

The following articles provide useful general advice and information about different types of mortgages.

Looking to remortgage? - Switch home loans and cut your costs

First time buyer? - Get a leg up onto the housing ladder

Save money with a flexible mortgage

The rise of the flexible mortgage

Repayment loans are back in fashion

Looking for buy to let? - Read this

Got an endowment mortgage? - You must read this

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