A Flexible or ‘lifestyle’ mortgage is designed to let you make extra repayments when you have extra money, and to reduce or even skip payments when necessary. Flexible mortgages are those loans that let the borrower increase or decrease the amount of their mortgage repayments within specific limits.
Flexible mortgages are a relatively new type of mortgage first seen in Australia in the 1990s and then imported to the UK in 1995. In essence they allow flexibility in the way that the mortgage is repaid where other mortgages have strict agreements and schedules enforced by penalties. These Flexible mortgages were designed to cater for the more fluid structure of modern life and the fact that jobs for life and fixed income is no longer the norm for many people.
Although the term Flexible can be used for a range of mortgages that have differing levels of flexibility but there are some features that have come to be expected of Flexible mortgages.
Flexible mortgages should allow:
Overpayment without penalty
This means that you can pay more than the usual monthly amount in order to pay off the mortgage more quickly and thereby save yourself money in the long run. If you have the money available then reducing the amount that you owe on your mortgage can make a significant difference by the end of your mortgage term.
Underpayment and Payment holidays without penalty
Sometimes money is tight because of unforeseen circumstances and it can be very useful to reduce or even stop your monthly outlay on the mortgage for anything up to 12 months. Of course in the long run the mortgage still has to be paid, but during a period of job loss or illness a payment holiday can be a huge relief. The amount of time that you need to have had the mortgage, the amount you can under pay and the length of time that you can take a payment holiday for will all vary with each Flexible mortgage and so comparisons will need to be made before you commit.
Borrow back/redraw without penalty
If you have made overpayments but you then decide that the money could be better used elsewhere you can choose to take some or all of the over-paid amount out of the mortgage to be re-paid later. Again the exact details of how much and when you can redraw will be dependent on the lender.
Daily Interest Calculation
Because payment amounts are flexible the mortgage should allow the interest payment to be calculated on a daily basis so that the Flexible mortgage customer can make decisions and judgements on the state of the mortgage. An overpayment for instance will reduce the amount owed and therefore reduce the amount of interest charged.