Flexible Rate Mortgage

A flexible rate mortgage allows you to overpay and underpay your monthly mortgage repayments without redemption penalties being charged. You can therefore tailor the mortgage payments that you make to your current financial situation, and are less likely to get into serious financial difficulties if money is tight for a couple of months. You can even borrow money against the capital repaid. Conversely when you have spare cash you can overpay on the standard amount that you owe, lowering your mortgage balance faster. A flexible rate mortgage is particularly suitable for those whose salaries fluctuate throughout the year, due to bonus schemes and incentives or to working in a sales role on commission. As well as being able to benefit from your bonuses, you would be able to guard against the possibility of receiving less than expected in a particular month.

Not every flexible mortgage is the same, and each will come with their own advantages and restrictions. Some lenders will restrict how much you can overpay during a set period, whilst you may find that there is a limit to the payment holidays that you can take, and to the minimum and maximum payments that you are able to make. Restrictions can also apply to borrowing against the capital already repaid. In fact, some mortgages labeled as flexible do not allow you to borrow any money against your mortgage. It is not in the lender's interest for you to repay the month too quickly, because they lose out on the interest payments. On the other hand, neither do they want a situation where you have had a six-month payment holiday, and are now unable to meet the increased interest payments that have mounted up. A flexible rate mortgage does need boundaries, but still offers a much higher level of freedom than a standard fixed rate mortgage.

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Flexible Rate Remortgage Facts

• You may benefit from falling interest rates. With a flexible rate remortgage, your interest rate will rise and fall with the Bank of England base rate of interest. If the base rate falls, your rate will also decrease, thereby saving you money.
• You may run into some financial uncertainty. If the base interest rate rises, your monthly payments will increase as well. There is always the potential danger with a flexible rate remortgage that the interest rate you're paying could increase dramatically, and this may lead to financial difficulty.  If you have been paying relatively low rates, you can combat this instability by putting any extra money into a dedicated savings account that you can fall back on if your payments increase beyond your means.
• Many lenders' flexible rates are not competitive. If you opt for a flexible rate remortgage, the interest rate you begin with may not necessarily be competitive with other lenders. The lure of a flexible rate is the possibility that your rate could decrease if the base rate decreases.