Flexible Mortgages offer the facility to make over-payments, under-payments or take payment holidays. Unlike traditional mortgages, these mortgages calculate interest on a daily or monthly basis (see 'How Mortgage Lenders Make Money'). This maximises the impact of any overpayment or underpayment in favour of the borrower or lender respectively.
In theory making over-payments could save you money by knocking years off your mortgage. This could be useful if you expect your salary to be topped up by period bonus payments or overtime. However if your income stays broadly the same you may be better off with either an Offset Mortgage or a fixed, capped or discount rate mortgage on a shorter re-payment term.
Offset mortgages combine the features of a Flexible Mortgage with a linked current or savings account held with the lender. The funds in the current or savings account are used to reduce the mortgage balance on which interest is payable. For example if the customer's mortgage account has a balance of £50,000 and their current or savings account has a balance of £5000, mortgage interest is charged on £45,000.
Be aware that no interest is paid on the credit of a current or savings account offsetting a mortgage account, and consequently no tax liability is generated. Current account mortgages are a variation on this type mortgage where the lending is only offset against a current account rather than combining this with a savings account.
If you need more information to decide which mortgage is the best for you, then check out
TheRateTart Guide to Mortgages.
Please note that the information on this web-site is intended to provide an overview of the different types of mortgage available. Nothing on this website should be construed as advice and you should not make your mortgage decision based solely on this information.
TheRateTart recommends you consult an independent mortgage advisor to help identify the most suitable mortgage for your needs.
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