Why are they so popular?
The Flexible Mortgage gives you some choices, not least of which is the ability to overpay or underpay the monthly premium as circumstances dictate.
The benefits of overpayment
By overpaying (i.e. repaying more of the loan than your agreed monthly premium), you have the chance to pay off your mortgage quicker and therefore save on the interest charges.
You can overpay regularly, or in the form of 'one-off' lump sums. Either way, since interest on a flexible mortgage is calculated daily, the money is deducted from your debt immediately.
That means you start paying interest on a smaller amount straight away, which could amount to savings of five figure sums in future interest payments.
A handy option when money is tight
Conversely, once you have made overpayments a flexible mortgage allows you some extra breathing space should your finances become stretched. You can then choose to underpay for a few months until you're back on your feet.
You could even give yourself a payment 'holiday' - a total break from paying your premium - for up to a year in some cases. (This will depend on the amount of equity you have.)
Some flexible mortgages let you withdraw overpaid money directly using a cheque book or debit card.
Others let you borrow more money as the value of your property increases.
The different mortgages available are well worth looking into and comparing.
Further flexibility...The Current Account Mortgage.
With the success of flexible mortgages, further new mortgage options based on the premise of improved customer ease and convenience have soon followed.
One of these is the Current Account Mortgage (often known as a CAM) which allows you to manage a selection of your personal finances through one account.
How does a CAM work?
Your mortgage, current account, investments, credit cards and any personal loans are combined in a single account with interest applied at the mortgage rate.
This can be an attractive option, since the mortgage rate is usually higher than savings rates. Any money which would usually be held in your savings or current account is used to offset against your mortgage.
The main advantage is that you pay less interest and your money works harder.
The drawbacks are that all your money is directed into your CAM (which reduces your investment choice) and that some CAMs have restrictive entry.
Offset Mortgages
An Offset Mortgage is similar to a CAM, except that your mortgage, your savings and your current account are kept as distinct entities.
Saving and borrowing rates are offset against each other, but you have a clear view of the different pools of money.
It's a good way to 'streamline' your finances and enjoy higher interest rates on your savings, but the same drawbacks that apply to CAMs also apply to the Offset mortgage.
Related links.
Mortgages
Remortgages
First time buyers
Fixed rate mortgages
Flexible mortgages
Tracker mortgages
Offset mortgages
Interest only
Key worker mortgages
Lifetime mortgages
Non standard mortgages
Right to buy mortgages
Bad credit mortgages
Buy to let mortgages
Mortgage calculator
Mortgage costs
Mortgage guide
Homebuyers info packs