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Flexible Repayments - Is Flexible for You?

Most loans and mortgages have fixed repayment terms, and a set amount that is to be repaid each month until the debt has been cleared. The length of repayment and the monthly amounts are set when the loan is arranged, and from then on they remain the same – flexible loans and mortgages take a completely different approach.

With a flexible repayment scheme you are in far more control over what you pay and when you pay it. Typically, when arranging the financing a ‘default’ payment period and monthly amount is set, and the borrower is allow to deviate from these defaults at their choosing, as long as they remain within certain limits or restrictions. In most cases overpayments (where the borrower elects to pay more than the default amount) are not restricted at all, meaning that if they wished to the borrower could pay off the debt in its entirety with a single payment, and there would be no early repayment penalty at all.

While overpayments will normally be a free area, underpayments do tend to have limits and restrictions imposed upon them, for example some lenders may insist that a certain level of overpayment has been reached before any underpayment is allowed, or there may be a limit on the number of successive underpayments that can be made.

So who exactly are flexible loans and mortgages for? Well, they are ideally suited to people who are not on a regular income, such as the self-employed and those who rely on commission. If your money coming in fluctuates from month to month then you could see real benefit from being able to alter your outgoings to match with your financial situation. If you have a lean month, or even some unexpected bills to pay, then you could reduce you mortgage/loan repayment amount that month rather than scraping around for the pennies to make ends meet.

On the other side of the coin, when things are going well you can increase what you are paying each month and clear the debt earlier, which will have the effect of saving you money in the long run by reducing the amount of interest that you pay as this is calculated on a daily basis.

The drawback of a flexible mortgage, or the less common flexible loans, is that you will pay a slight premium for the extra freedoms they offer, in general there will be marginally higher rates of interest charged on these types of loan. Whether the benefits outweigh the slightly higher cost will depend on you circumstances, if you like to be in charge and will make use of the freedoms afforded to you by such a payment scheme then it may well be just what you are looking for.