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Flexible mortgage in the UK
Flexible mortgages cover all the interest rate options, tracker, variable, discounted, fixed etc, and have been available for many years.
A truly flexible mortgage allows you to make overpayments and underpayments, borrow back overpayments and, if you have built up enough credit, to take payment holidays. Another important feature is that interest is calculated monthly/daily, not annually in arrears, so overpayments have an immediate impact on what interest you pay. You can, therefore, significantly reduce the term of the loan and save thousands of pounds in interest payments if you are able to make additional payments during the term of the mortgage.
Flexible mortgages in the UK can be ideal for people with an inconsistent income, like the self-employed especially if the mortgage offers a mortgage interest offset facility or current account facility.
If the flexible mortgage offers a mortgage interest offset facility this can be extremely tax efficient. Rather than having a conventional savings account, you can pay your savings into a savings account set up alongside your mortgage. The lender will only charge interest on the net mortgage balance after allowing for the credit balance in your savings account. You do not earn interest on the savings account but instead offset mortgage interest at the mortgage interest rate applicable to your loan. As you offset interest at the same rate as the mortgage, the interest savings will often be greater than the rate of interest earned on a conventional savings account. And what’s more there is no tax to pay, so in real terms offsetting interest on your flexible mortgage account is not only financially more efficient but it helps to reduce the term of the mortgage as the monthly mortgage payment includes an increased capital repayment that would have been paid in interest were it not for the interest that has been offset.