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Flexible mortgages

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What is a flexible mortgage?

A flexible mortgage is a type of mortgage that gives you more options around when and how you repay the loan. 

If, for example, you receive a windfall and want to pay off £10,000 of your mortgage with a lump sum, you generally can - without paying a penalty to do so. 

That’s why flexible mortgages are also sometimes known as mortgages with no early repayment charges (ERCs) - although most mortgage deals will still impose some ERCs for the initial period.

And if you are taking a few months off work to go travelling, you can often arrange not to pay your mortgage payments during that time.

Many of the best mortgage deals now include some flexible features. 

However, the benefits on offer vary, so it’s always wise to check the small print to make sure the deal you’re being offered provides the flexibility you need.

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How do flexible mortgages work?

Flexible mortgages offer a variety of features designed to appeal to different types of borrowers. These include:

  • Larger overpayment allowances that allow you to pay more than your agreed monthly repayments, thereby reducing the time it takes to clear your mortgage and the amount of interest you pay overall  

  • Underpayment allowances that let you pay less than the agreed monthly mortgage repayment for a period of time (although these are only by arrangement and often depend on you having overpaid in the past) 

  • Arranged payment holidays that allow you to miss one or more mortgage payments penalty-free (although you’ll still have to pay off your mortgage in full) 

  • Droplock promises that mean you can switch from a tracker or discount mortgage deal to a fixed-rate mortgage without facing early repayment charges (for example, if interest rates start to shoot up)

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What type of mortgages can I get with flexibility?

Flexible mortgages come in a range of shapes and sizes, but flexible features are more common with certain types of mortgages. Here are some of the mortgages you may want to consider when looking for the best flexible mortgage for you:

Flexible repayment mortgage

With a repayment mortgage, your monthly repayments include an interest payment plus a percentage of the amount you initially borrowed. So say your repayment is £800, £300 of that might be interest paid to the mortgage lender, while the other £500 is subtracted from the amount you owe. With a flexible repayment mortgage, you might be able to increase these monthly payments to make a bigger dent in your loan amount each month.

Flexible offset mortgage

With an offset mortgage, you ‘offset’ your mortgage interest payments against savings held in a linked account. If, for example, you have a £200,000 offset mortgage and £50,000 in your linked account, you’ll only be charged interest on £150,000 - meaning you can keep some money in cash without paying interest on a bigger mortgage. The bad news, though, is that there are very few offset mortgages on the market today.

Flexible fixed-rate mortgage

Fixed-rate mortgages, with which your interest rate is fixed for a set period of time, offer the certainty of knowing exactly how much your monthly repayments will be for that time. But in return for that peace of mind, they expect you to commit to their terms. So you can expect to face ERCs until the initial deal period comes to an end in most cases.

Flexible tracker mortgage

Tracker mortgages are variable-rate mortgages that change in line with the Bank of England base rate rather than the mortgage lender’s standard variable rate (SVR). They may offer some flexible features, such as overpayments up to a certain amount and short-term payment holidays. Some tracker mortgages also include a droplock feature, which means you can switch to a fixed rate should rates start to rise dramatically.

Do flexible mortgages have early repayment charges?

On standard mortgages, early repayment charges, also known as ERCs and redemption penalties, are typically a percentage of your loan, say 3% - or £3,000 on a £100,000 mortgage.

Not imposing these charges in some situations is one of the main advantages of flexible mortgages.

However, most flexible mortgage deals still impose ERCs at some level, for example, if you want to pay off the majority of your loan in one go during the offer period.

Mortgages with no early repayment fees or charges, meaning you can pay them off in full at any time without facing a penalty, are rare. However, you can usually repay your mortgage in full without penalty if you wait for your deal to end and you’ve been moved on to the lender’s SVR.

Advantages of a flexible mortgage

  • Greater freedom to overpay or underpay when you want/need to 

  • May let you take a mortgage payment holiday, for example when travelling

  • Can help you pay less interest and pay your mortgage off more quickly

  • May allow you to switch to a better deal if the interest-rate environment changes

  • Can be handy if your income fluctuates, for example, because you’re self-employed

Disadvantages of a flexible mortgage

  • It may have higher interest rates/fees than mortgage deals with no flexible features

  • Not all flexible deals are the same, which can make them harder to compare 

  • May still impose restrictions, such as early repayment charges for very large overpayments

Flexible mortgages FAQs

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