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Offset Mortgages

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The longer the term of your mortgage, the more expensive it becomes. But if you want to save money and reduce the term, you can choose an offset mortgage. This mortgage is adjusted against your savings or current account deposits. Many lenders that offer offset mortgages calculate the interest daily. This means that even a negligible payment will save you a lot of money in the long run. Besides, the savings linked with the offset mortgage carry higher interest rate than the regular savings accounts.

There are two types of offset mortgages: current account mortgages that link your current account with the mortgage, and savings and mortgage accounts that are maintained separately but linked together while calculating interest.

In the first type of offset mortgage, your account and mortgage are together, so you get to see only one statement and balance. As the balance is computed daily, you are charged interest only on the outstanding balance.

Like any other mortgage, you need to make monthly payments. As the savings are offset against the loan, you are paying more than the stipulated amount each month. This lowers the tenure of the offset mortgage. An offset mortgage lets you borrow more funds at any time you want, thus eliminating the need for re-mortgaging. Besides you do not pay any penalty for the lump sum payments.

The offset mortgage is not meant for everybody. To benefit from this mortgage, you should have at least 10% of your mortgage in your bank account. However 15-20 percent mortgage is the best. It is suitable only for people who have plenty of cash. It is also right for you if you are a tax payer, since you can offset your tax liability against the mortgage. Also, the money in your bank account does not earn interest, which effectively reduces your tax liability. It is also good for self-employed people, since the unique feature of this mortgage is overpayment or underpayment of monthly installment.

The offset mortgages are available as fixed rates, discounts or standard variable rate mortgages. The interest rate is nearly 1 percent higher than the normal mortgages

The drawback of offset mortgages is that their interest rates are not competitive. You can get a normal mortgage at cheaper rates if you shop around and change the lender after some time. An offset mortgage should be taken only if you have substantial ‘idle’ money in your bank account.