What makes a mortgage flexible?

A guide to flexible mortgage features by Furness Building Society

Everything you need to know about flexible mortgage features

As the cost of living crisis looms, flexible mortgages are undoubtedly increasing in popularity. These traditional mortgages come equipped with useful flexible features, meaning they can help ease any financial stress caused by an uncertain climate. Simply put, flexible mortgage features allow you to adjust your payments to suit your financial situation.

This means you can make overpayments, underpayments or take a mortgage holiday at any point during the mortgage term. Some people opt for a mortgage with the option to make regular overpayments. Therefore, paying less interest overall.

On the other hand, those looking to cut their monthly expenses may find a flexible mortgage to be an ideal, albeit temporary, solution. Especially when you consider Google searches for ‘mortgage holiday’ were up 150% in 2022 compared to 2021.

Before you get too carried away, remember that even mortgages with extra flexibility have their limitations. To give you a better idea, we’ve answered the most common questions about flexible mortgage features in this complete guide.

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How do flexible mortgage features work?

Flexible mortgage features typically work by allowing you to increase or reduce your monthly repayments throughout your mortgage term. You can even benefit from payment breaks should you ever find yourself in need of some financial wiggle room.

Not all mortgages are the same though, so get acquainted with your mortgage’s terms before making any significant changes.

What are the different flexible features of a mortgage?

Flexible mortgage features include overpayments, underpayments, payment holidays, switching and daily calculated interest.

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.

​​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 if 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.

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.

What are the different types of flexible-style mortgages?

There isn’t a ‘flexible mortgage’ product per se, but rather different types that fall under the ‘flexible mortgage’ umbrella. This includes flexible repayment mortgages, offset mortgages, fixed-rate mortgages and tracker mortgages.

Flexible repayment mortgages
Flexible repayment mortgages work much like a ‘typical’ repayment mortgage. The difference is that you have more flexibility on whether you can overpay, underpay or take a mortgage holiday. Usually, there would be no risk of penalty fees, such as early repayment charges.

Flexible offset mortgages
Flexible offset mortgages allow you to reduce the amount of monthly interest by using your savings. For example, if you have £10,000 in savings and a mortgage of £150,000, then you would only pay interest on £140,000. This could take years off your mortgage!

Flexible fixed-rate mortgages
Like a traditional fixed mortgage, flexible fixed-rate mortgages offer you a fixed rate for a fixed term. Plus, as a bonus, you can adjust your monthly repayments depending on your financial circumstances.

Flexible tracker mortgages
Flexible tracker mortgages work in the same way as a standard tracker mortgage. By this, we mean that they track the Bank of England's base rate and adjust your interest rate accordingly. With a tracker mortgage, your mortgage repayments could change every month.  The only difference between this and a traditional tracker mortgage is the addition of flexible payment features.

Who can benefit from flexible mortgage features?

Mortgage flexibility is growing in popularity due to the peace of mind that comes with having flexible payment terms in place. This type of mortgage typically appeals to those on a fluctuating income, such as:

  • Self-employed borrowers
  • Borrowers with a commission-based income
  • Those on zero-hour contracts

If your circumstances would suit a more flexible mortgage product, get in touch with our team for honest advice about your mortgage options. You can also find more information about self-employed mortgages in our self-employed FAQs and mortgage guide.

Why aren't all mortgages flexible?

Whilst having flexibility in your mortgage terms may seem like the obvious choice, there are benefits to traditional mortgages as well. Generally, it comes down to your individual situation on whether you're better suited to a ‘flexible’ or a ‘traditional’ mortgage.

For example, traditional mortgages will typically have lower interest rates. This means you don’t want to take out a flexible mortgage to act solely as a safety net. If you’re unlikely to use the flexible features, then you could just end up paying more in the long term.

More flexibility can also be a bad fit if you’re not disciplined with your money. Flexible mortgage features generally work best if your overpayments outweigh both your underpayments and any payment holidays. If you’re likely to keep taking back the money you overpay, then a traditional mortgage would be a more cost-effective option.

How would a flexible mortgage affect my credit score

Applying for any type of mortgage will create a slight dip in your credit score. However, this is generally short-lived as making regular on-time payments will improve your score over time. So, simply taking out a mortgage with flexible options won’t harm your credit rating.

However, if you choose to utilise the flexible features this may impact your score. For example, a payment holiday will usually appear on your credit report, therefore affecting your score. If you’re unsure, check with your mortgage lender on how a payment holiday, or underpayment, may appear on your report.

Remember, you must always seek permission before taking a holiday payment or underpaying your mortgage. Without permission, this would show up as a ‘missed payment’ on your credit report. Any missed payments will harm your overall credit score.

Will using the flexible features affect future mortgage applications?

Depending on the terms of your mortgage, a mortgage payment holiday or underpayment may appear on your credit report. As lenders use your credit information to assess your affordability, this may impact their decision.

Additionally, lenders don’t just use credit reports in their decision-making process. They’ll also use information from your bank account(s) to assess your creditworthiness. So, even if your payment holiday or underpayment isn’t in your credit report, it’s still in your bank statements. This could prompt lenders to look at your application more carefully.

Whilst flexible mortgage features like payment holidays and underpayments can be beneficial, they should only be used when necessary. If you’re worried about falling behind on payments, speak to us directly or take a look at our cost of living support section.

Mortgages at Furness Building Society

To compare your mortgage options here at Furness Building Society, use our handy mortgage finder. You can also get in touch with our team to discuss your options in more detail.

For more general information about mortgages and the home buying process, take a look at our mortgage hub.