These mortgages give the borrower some flexibility to change their monthly payments to suit the person’s ability to pay, as well as the opportunity to pay off the mortgage more quickly. Although there is no exact or precise definition of a flexible mortgage, it is generally considered that such a product should offer the following basic features as standard:

• The facility to make overpayments at any time without incurring an early repayment charge;
• The interest is calculated on a daily basis;
• There is a facility to underpay, but only within certain limits set by the lender;
• The facility to take a payment holiday, again within boundaries laid out from the start.

Two key benefits of these features are as follows:

• The mix of a daily interest calculation and occasional/regular overpayments will result in considerably less interest being paid overall, and the mortgage term being reduced.
• The ability to reduce monthly payments (or suspend them completely) for a limited time will be helpful for someone experiencing temporary financial problems. In these circumstances, a borrower may be able to borrow back overpayments made earlier in the term.

Many lenders are now offering flexible mortgages with a fixed, discounted or capped rate for an initial, interim period. Early repayment charges do not usually apply to these products, but an arrangement fee may be chargeable and, in some cases, a particular insurance product must be purchased from the lender at the same time.

Most flexible mortgages will allow the borrower to draw down further funds as and when required, although the lender will have set a limit on total borrowing at the commencement of the agreement.

Flexible mortgages involve a much simpler administrative process than is usual when dealing with further advances. The way in which the mortgage deed is generally worded for flexible mortgages is such that all additional funds withdrawn, within the limit on total borrowing, will automatically take priority over any other subsequent or further charges registered against the property.