The ability to overpay on your mortgage combines with daily calculation of interest rates to offer the single most significant feature of flexible mortgage.

If you make regular overpayments for a period of time or a lump sum deposit on your mortgage you are reducing the outstanding balance ahead of schedule. In short, this means that if you then continue with normal repayments until the mortgage is paid of, you will reach the end of your term earlier and having paid a significantly lower total amount in interest than you would have done if you had stayed on your original repayment curve.

Any amount that you pay over and above your monthly repayment is entirely going towards reducing the mortgage debt as the interest charges are met your normal monthly repayment. This means that the capital you owe is reduced by the amount you have overpaid. As a result, the amount of interest you owe each month is reduced, as it is being calculated on a smaller amount of capital than would have been the case if you had stuck rigidly to your repayment plan. This in turn means that a smaller portion of your ongoing repayments is being used to pay off interest on the loan, while a larger amount is being used to reduce the capital, therefore speeding up the rate at which the loan is paid off. The more overpayments you make, the faster this effect works, particularly in the early months and years of a mortgage, when the interest makes up a bigger proportion of your normal monthly payment.

This effect is amplified by daily calculation of interest on the mortgage balance, which results in reductions to the calculated interest charges from the day the extra funds hit the mortgage account.

Small regular overpayments and single lump sum deposits can lead to savings in the overall interest bill ranging from just a few pounds to many tens of thousands of pounds, depending on the size of your mortgage and how aggressively you are willing to overpay your mortgage.

If a borrower overpays by £50 each month on a loan of £100,000 taken out over 25 years at 5.49%, the customer can save over £14,000 in interest payments and cut the term of the mortgage by over three and a half years. Ramp this up to a £130,000 loan and an overpayment of £200 each month on a slightly higher but still realistic rate of interest such as 6.2% and the mortgage could end up being paid off 8 years early with savings of nearly £50,000.

Because borrowing almost always costs more than saving, it is usually well worth homeowners who have relatively poor-paying savings accounts instead putting their money into their flexible mortgage. They benefit from instant interest savings on their mortgage, whilst still retaining the right to re-release the money in the future.

Some people are put off from flexible mortgages by the fact that they can find more attractive heavily discounted headline rates elsewhere. Flexible mortgages don't always offer the most competitive rates, but in the long term they can save offer greater savings by making your money work harder for you, as well as offering various features that you may be grateful of should some unforeseen circumstance befall you.