When to get a flexible mortgage deal

What is a flexible mortgage? Who does it suit - and when should go for this type of mortgage over another? John Fitzsimons has the answers.

It's not often that you can use the same adjective to describe a mortgage as you would use to describe, say, a top gymnast or an extremely good elastic band.

But your mortgage lender offered you the chance to shave years off your mortgage, take breaks from your mortgage payments and vary the amount you pay every month, you might well find yourself thinking: "Hmmm, this mortgage is extremely flexible."

The question is: what kind of borrower are flexible mortgage best suited to - so when should you get one?

Varying your payments

The main feature that most flexible mortgages offer regards the ability to vary the amount you hand over to your mortgage provider each month.

So, ?f?o?r? ?e?x?a?m?p?l?e?,? ?y?o?u? ?should be allowed to overpay on your mortgage without incurring early repayment charges.

This is an advantage because, by overpaying each month you build up equity in your property faster, protecting yourself against the threat of negative equity if house prices fall. And, of course, since you are reducing the size of your mortgage at a faster rate, you will shave years off the mortgage term - saving yourself thousands of pounds of interest payments!

If, on the other hand, there are some months when money is tight,  some flexible mortgages will also allow you to pay less each month than usual. Remember though that this will only increase the overall cost of the mortgage in the long run.

It's also vital to check whether there are any limits on the maximum amount you can overpay ?each month/year, ?without incurring an early repayment charge.

One particularly innovative lender in this area is Coventry Building Society, which last month launched two fixed rate mortgages which allow you to overpay by as much as you want without incurring any charges whatsoever. You have a choice of a two-year fixed at 3.99% up to 65% loan-to-value, or a three-year fixed at 4.49% available to borrowers with a deposit of 25%. With these deals you can become mortgage-free whenever you want, without being whacked with a penalty fee!

If you want to see how much of a difference overpaying can make on your own mortgage, lovemoney.com have our own nifty overpayments calculator. Have a go and see how much you could save!

• Watch this video: How to...get out of negative equity

Off on holiday

Another attractive feature offered by some ?flexible ?mortgages is the ability to take break from your mortgage payments, known as a 'payment holiday'.

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As the name suggests, payment holiday means that you can stop making payments on your mortgage for months at a time – effectively, take a holiday from your mortgage.

However, these holidays are not available to all borrowers at the drop of a hat, and different lenders operate different criteria about who is eligible for payment holidays. For example, Halifax states that borrowers can take up to six months off from their mortgage payments (depending on the reason for wanting to take the holiday) so long as they have held the mortgage for at least three months, are completely up to date on their payments, have not had previous payment holidays totalling six months and the loan-to-value does not exceeds the lenders criteria.

So why would you want to take a payment holiday? These are some of the examples Halifax gives of reasons they are likely to accept.

• Maternity Leave
• Change of Employment
• Children's Education
• Exceptional or Unforeseen Household Expenditure
• Exceptional or Unforeseen Vehicle Expenditure
• Wedding Expenses
• Tax Bill

Of course, this also varies from lender to lender, so if you are interested in taking a payment holiday you'll have to speak to your own lender to see whether your circumctances qualify.

• Read this blog: Should you get a fixed rate or a tracker?

A flexible borrower

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So if you are in a job where a fair chunk of your salary is commission-based every month, having the option of variable payments is a real bonus. It means that if you have a particularly good month, you can devote some of that extra cash towards the mortgage, which will save you money in the long run.

Similarly, if you receive an annual bonus, or are self-employed and likely to have months where you earn more than others, having some form of flexibility in your mortgage may be more than useful - it may be a necessity.

My favourite flexible deals

So let’s take a look at some specific flexible examples. I’ve put together the table below covering the deals that I believe represent a great selection of flexible features (as well as very competitive interest rates!)

Compare mortgages at lovemoney.com

The ultimate flexible mortgage

The ultimate flexible mortgage, in my opinion, is an offset mortgage.

With an offset mortgage, you link your mortgage debt to your savings account (and in some cases, such as the One Account, your current account too). You then only pay interest on what's left of your mortgage debt, once your savings have been taken into account.

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So for example, if you had a £200,000 mortgage, but £20,000 in savings, you would only pay interest on £180,000 of that debt.

It’s then up to you how you want to benefit – you can keep your repayments at their existing level, in which case you’ll pay off the mortgage early and save money on interest payments. Or you can instead opt to reduce how much you fork out each month, leaving you with more cash in your pocket.

What’s great is that you can vary this by the month, to the point that you are completely in control of how much your mortgage costs. The one downside is that because you are using your savings in this way, they aren’t earning any interest, though given how poor a return you can expect from most savings accounts, particularly after tax, that seems a decent trade-off to me!

For a full explanation of offset mortgages and how you can benefit from them, be sure to have a read of Save £2k and shave 5 years off your mortgage. You can also try out our offset calculator to work out just how much offsetting your mortgage could save you.

• Ask a question in Q&A

The importance of advice

One thing that is exceptionally important in all of this, in my view, is the role of independent advice. When I sorted out my mortgage, I relied on my broker to find the deal that best met our needs in terms of flexibility, but also to explain clearly and concisely how those flexible facets worked with our mortgage.

This is because it can be quite tricky to compare different mortgages from various providers in terms of how flexible they are. You can certainly do this with lovemoney.com’s mortgage centre, but if the flexibility of a mortgage is a real consideration for you, then I’d encourage you to speak to one of our advisers about your specific circumstances. The advice is absolutely free, and you can speak to them over the phone, by email or via instant messager. Check out the lovemoney.com mortgage centre for more details.

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