Flexible Mortgages

The UK borrowed many of its flexible mortgage concepts from Australia, and when they first hit the UK they were often described as ‘Australian mortgages’.

A flexible mortgage is designed to allow you to make extra lump sum repayments off the mortgage balance, and some lenders have extended that flexibility further to allow borrowers to either reduce or skip their payments also, in the form of ‘repayment holidays’.

Some lenders do impose the condition however that you need to have first built up a reserve through your overpayments to the mortgage, before they will allow you to take any payment holidays.

The major benefit of a flexible mortgage is that the interest is calculated on a daily or monthly, rather than yearly basis; borrowers on a yearly interest calculation who made a lump sum reduction were still paying interest on the same balance until year end, when the balance would be re-adjusted.

Daily interest calculation, especially if you are planning to make regular lump sum reductions, can save you thousands in interest payments, and shave years of your mortgage term; lump sum reductions are immediately deducted from the balance and the interest is then calculated on the new smaller outstanding loan amount.