Offset Mortgages
OFFSET MORTGAGES EXPLAINED
An offset mortgage means that interest on your home loan is reduced by the funds in your savings account and your current account. The more you have in your savings account, the less interest you pay on your offset mortgage. This helps you to repay your loan faster and more cheaply in the long term. The downside is that you don't receive any interest on your savings or current accounts.
The main advantage of an offset mortgage is that whenever base rates are low savings rates are also poor. Rather than earn a small amount of interest let your savings work to reduce your home loan by repaying it more quickly. Some lenders claim that they have customers who have such high levels of savings that they do not pay any interest on their home loans at all.
A further benefit of this type of borrowing is that all your other debts such as your credit cards or personal loans can be linked into this type product. This allows you to repay all of your debts at the same rate as your home loan. This is likely to be considerably lower than the normal rate on loans and credit cards. Furthermore any credit card and loan debt remains unsecured borrowing even though they are paid off at the prevailing home loan rate. If you can't keep up the repayments on the credit card / loan part of your borrowing your home is NOT at risk by normal definition but it could be vulnerable in other respects.
Its important to remember that should you consolidate your debt into this type of product you are turning short term debts into long term ones. Consolidated debts should be paid off as quickly as possible, otherwise they will cost much more in the long run.
Many people in the UK today are turning to this type of borrowing. The major benefit to you is that you can have all of your savings and debts in separate accounts even though they work together. This is unlike a current account mortgage where your accounts are mixed together. By 2006, it is expected that this type of home loan will make up to around 25% of the market.
(Source: Council of Mortgage Lenders) This type of product is best suited to individuals with volatile incomes, such as the self-employed or individuals that receive large cash sums such as bonuses. People with significant amounts of savings will also find this type of product useful. Ask us for more information.
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