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The flexible mortgage is a product that makes the traditional British homeloan, with its fixed and inflexible payment schedule over 25 years, look prehistoric. It is sometimes known as the Australian mortgage as that was where they were first developed.
The advantages
With a flexible mortgage, borrowers can overpay, underpay, take payment holidays, borrow back funds and benefit from daily interest calculation, which can save thousands of pounds and knock many years off the mortgage term. All this, and no redemption penalties to pay.
Some flexible mortgages double up as current accounts - your salary is paid in monthly and you effectively pay off an enormous overdraft.
The vast majority of flexible mortgage borrowers make overpayments on their mortgages, which makes great sense. If you can get rid of your mortgage early you can save yourself tens of thousands of pounds in interest payments.
Some flexible deals allow you to take a complete break from making payments for up to a year. This could be useful if you're thinking of starting a family, taking a sabbatical or even going on a round the world trip. Naturally you need to have built up sufficient overpayments to cover the period you take off. And the terms and conditions will vary. Some lenders may only let you take a couple of months' payment holiday each year.
But not all flexible mortgages offer the same facilities so if there some things which matter to you, such as the ability to borrow back money at for less than a personal loan or the chance to pay off early make sure that the product you choose allows this.
The disadvantages
Unsurprisingly all this flexibility comes at a price. Such mortgages usually charge higher interest rates than standard home loans, but the great advantage is that they potentially allow you to pay your mortgage off years earlier than you originally planned. But do remember to compare with a standard mortgage - some will allow you to pay off lump sums without penalty.
There are fewer products in the market so there is less choice. When they first appeared the rates charged were not the most competitive and there wasn't the range of fixed rates and discounts on flexible deals that are available on traditional mortgages. But this is beginning to change as more lenders enter this market.
The only real danger lies with the borrower themselves. If you are not financially disciplined and are likely to be tempted to underpay regularly, it might be safer to go for a more rigid deal.
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