Offset Mortgages - Finally Explained Simply and Concisely!
Offset Mortgages - Finally Explained Simply and Concisely!
Offset mortgages are often seen as complicated or expensive. However, many offset deals offer some great benefits; although they are not for everyone. Our guide explains how offset mortgages work and the pros and cons of such schemes. A bit of history to get us started, they were first conceived in Australia and made their way to British shore and lending institutions in 1997. It's a clever little idea when you boil it down to the bones, you set up a mortgage and savings account parallel to each other, when your savings accrue, a portion of this goes straight into your mortgage and reduces the mortgage overall.The term 'offset' comes from the fact that your savings ore 'offset' against the balance of your mortgage. So, whilst you have savings in your account, you can repay your mortgage balance faster than with a traditional mortgage. And, in addition, you will pay less interest over the term of your mortgage.Offset mortgages can have the potential to save a borrower huge sums of money over the life of the loan. They are best suited to people who receive bonuses or commission as well as basic salary, as these lump sums can be placed in the savings account which then pays the mortgage.Offset mortgages are much more fluid than and not as structured as a fixed rate mortgage, or even an interest only mortgage. It's more possible to overpay on the mortgage (in fact that's the idea!) and you won't be subject to penalty charges for it as it's taken out the savings account. Yet there is also more scope for underpayments also, taking a month payment holiday is easier if you're jetting off on holiday yourself and need the extra cash!The options just don't stop there either! As well as the savings account, you can link up your current account to the on what's called an 'offset contract'. Say you have money left in your account the day before your next payday for example, the offset contract can take what's left in your account as added payment towards the mortgage. Or you can set it to take a certain amount of what's left at the end of the month.Offset mortgages are often seen as complicated or difficult to understand. However, this is often far from the case. They can be much simpler to use than you think, and many lenders have improved their schemes to make them more accessible to many borrowers.Now for a few of the major downsides, the savings account which is also set up will, in most cases, not be able to earn interest. The reasoning you will hear behind this is that the lenders are already allowing you to overpay on your mortgage without penalty costing the lenders thousands of pounds in lost interest over the life of the mortgage.So next time you look into a new mortgage, make sure that you factor in the idea of an offset mortgage product - you can speak to a mortgage broker who can help you to find the best deals available depending on what you are looking for.So, if you are considering taking out a new mortgage, make sure that you consider whether an offset deal would be right for you. Taking advice from a professionally qualified mortgage broker may be worthwhile as they can determine whether a fixed, discounted or an offset deal is the right thing for you.