Flexible mortgage features include overpayments, underpayments, payment holidays, switching and daily calculated interest.
Overpayments
Overpaying on your mortgage is widely recommended, but only if you’re in a position to do so. This is because overpayments come off the capital, so you could save money on interest and shave years off your mortgage. This can be paid either as a lump sum or as an increase to your monthly payment(s).
When a mortgage has flexible features, you have more freedom to overpay without worrying about paying a penalty. However, some mortgages may have a limit on how much you can overpay each year (usually 10% of the balance). So, you should always check your mortgage’s terms and conditions before making any payment changes.
Underpayments
On the flip side of overpayments, a more flexible mortgage will enable you to underpay by a set amount. This is particularly useful if you have a fluctuating income, or find yourself in a situation where your outgoings surpass your income.
As with overpayments, mortgages can vary and there may be limitations on how much you can underpay and when. For example, underpayments are usually only allowed if there has been a previous overpayment to balance it out. With this in mind, remember to always check your mortgage terms before scheduling an underpayment.
Daily interest calculations
Any overpayments, underpayments or payment breaks are taken into account immediately. For this reason, mortgages that are considered flexible will usually calculate your interest daily, rather than monthly or yearly. This is particularly useful if you’ve made regular overpayments, as you could see a swift reduction in your interest charges.
Payment holidays
Life can be unpredictable and sometimes we just need a little extra help. Payment holidays have become increasingly popular since the pandemic - a prime example of unavoidable circumstances. Some mortgages allow for these situations by giving you time to get back on your feet.
It’s important to note that some mortgages may require you to have overpaid previously to benefit from a break. You may even need to make a certain amount of payments before you’re eligible for a mortgage holiday.
When considering a payment holiday, you should also factor in the interest you’ll accrue during that time. So only take a payment holiday if it’s absolutely necessary.
Switching
If your mortgage is more on the flexible side, you can usually switch between various types of mortgages without having to pay early repayment fees or submitting a complete remortgage application.