Flexible Mortgages
There are various types of flexible mortgages available and they all give you increased flexibility, when compared to traditional types of mortgages.
A flexible mortgage may include all or some of the following features:
- The ability to make overpayments (without penalty), subject to the lenders agreed limits
- The ability to underpay your mortgage (within certain limits)
- The option to take payment holidays
- A facility to borrow more money within agreed limits, for lump sum expenditure, i.e., home improvements
- Current account with chequebook and an agreed overdraft facility
- Credit card with an agreed spending limit
A flexible mortgage may usually be set up on any of the introductory rates (discounted, capped, fixed, tracker, etc) available to “traditional” mortgages.
Not all flexible mortgages offer the same features, and some are more “flexible” than others.
An offset mortgage will have either (or sometimes both) a linked current or savings account, into which you may pay surplus funds or savings. You will not be paid any interest on the amount of these savings.
However, you will not pay any mortgage interest on the directly equivalent amount of your mortgage balance.
Some offset mortgages allow you to reduce your monthly mortgage payment, but usually you would continue to pay your normal monthly mortgage payment, but that part of your normal monthly mortgage payment that (if you had a nil balance in the offset linked current or savings account) would have been payable in mortgage interest, instead directly reduces your outstanding mortgage balance.
This has a double advantage:
- You are getting a “return on your savings” equal to the gross mortgage interest rate payable on your mortgage. This return is almost invariably quite a bit higher than the interest rate you may be able to get by placing the savings in a normal deposit account.
- You will not pay any tax on the “saved mortgage interest”. As the “saved mortgage interest” instead reduces your mortgage balance, you have not received a penny in interest, and therefore will have no tax to pay.
This last feature could be of particular benefit if you are a higher-rate taxpayer, as it will enable you to shelter savings, in theory up to the amount owed on your mortgage, from higher-rate tax. You will effectively get a tax-free return on your savings.
