If your income isn’t exactly steady, you might want a mortgage that lets you pay more when you have it, and less when you don’t.

Flexible mortgages have become popular as people want more control over their mortgage repayments. 

You might be one of the many now working for themselves since COVID, for example, and not getting the same income each month. Or you might be planning a career break or some renovation. So a mortgage with some wiggle room could be handy.

Common flexible mortgage features include:

  • Underpayments
  • Overpayments
  • Payment holidays (making no payment that month)
  • Offsetting your debt with money in a linked account

But all of this is within limits, so we’ve explained what you need to know and how to find the top rates if you decide to apply.

Overpayments

Got a bonus? Landed a big contract? Happy days. If you can afford to make overpayments, it’s a great way to pay off your mortgage faster and save on interest. With many but not all mortgages, you can make overpayments but the cap is typically 10% a year without paying a penalty. As limits vary, it’s important to check your mortgage’s terms.

Underpayments

When times are more tricky, you might want to pay less and a flexible mortgage will let you underpay, typically by a set amount. There are some restrictions - for example, you can usually underpay only if you’ve previously made an overpayment that balances it out.

Payment holidays

If life’s thrown you a curveball, you might need to take a break from mortgage repayments. Before you do, it’s important to factor in the extra interest you’ll be paying. Some deals require you to have previously overpaid, or have made a certain level of payments before you’re allowed to take a payment holiday.

Daily interest

Flexible mortgages typically calculate your interest daily. This means that both underpayments and overpayments immediately impact your balance and what the lender calculates you should pay in interest. For example, overpayments would immediately benefit you.

Other types of flexibility: Offset mortgages

Flexible offset mortgages allow you to put savings into an account linked to your mortgage. You can make overpayments into this account and “offset” the interest that you’d pay on your debt. For example, if you had a loan of £100,000 but £20,000 in your linked offset account, you’d be paying interest on only £80,000 while the money’s in the account. And you can still access your savings when you need to. You can choose to use the savings you make to either lower your payments or reduce your term.

Current account mortgage

These mortgages are just a type of offset mortgage.  In effect the lender treats your mortgage debt and the balance in your current account as one big pot. This means that a positive balance in your current account will offset the negative balance of your mortgage. Our guide to offset mortgages explains more.

Pros and cons of flexible mortgages:

Pros

  • Wiggle room
  • You could pay off your mortgage faster and save interest
  • More control over your repayments
  • Suit those with an unpredictable income

Cons

  • Limits vary between lenders so it’s important to check
  • Rates can be higher

In a nutshell

Your mortgage should suit your life - not the other way around. If you’re working for yourself or you just think you might need some mortgage payment flexibility in the near future, chat with us. Our expert brokers can help you find the right mortgage with the best rates.

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[Disclaimer] This content is intended for general guidance and is not a substitute for personalised mortgage advice.