What is a Flexible Mortgage?
A flexible mortgage, also known as an ‘all-in-one’ or ‘offset’ mortgage, is a home loan that allows you to make extra repayments and then redraw those funds if needed. It often combines your home loan, transaction accounts, and savings into a single facility.
Key Features of Flexible Mortgages
These loans offer several benefits that provide financial flexibility:
- Redraw Facility: Access any extra payments you’ve made above your minimum repayment amount.
- Offset Account: Link a savings or transaction account to your mortgage. The balance in this account ‘offsets’ your loan balance, reducing the interest you pay.
- Payment Holidays: Some flexible mortgages allow you to take a break from making repayments for a set period.
- Extra Repayments: Make additional payments without penalty to pay down your loan faster.
How Does an Offset Account Work?
An offset account is a powerful tool. For example, if you owe $300,000 on your mortgage and have $50,000 in your linked offset account, interest is only calculated on the difference ($250,000). This can significantly reduce your total interest paid over the life of the loan.
Benefits and Applications
Flexible mortgages are ideal for individuals or families who want to:
- Pay off their home loan faster.
- Manage irregular income streams.
- Have easy access to emergency funds.
- Gain control over their finances.
Challenges and Misconceptions
While beneficial, some borrowers find flexible mortgages have slightly higher interest rates compared to basic variable-rate loans. It’s essential to compare the overall cost, including fees and interest rates, to ensure it suits your financial situation and long-term goals.
FAQs
Is a flexible mortgage suitable for everyone?
It’s best for those who can make extra repayments and want easy access to those funds, or those who benefit greatly from an offset account.
Are there extra fees?
Some lenders may charge annual fees or have slightly higher interest rates. Always check the full terms and conditions.