Offset Mortgages

What are offset mortgages?

Offset mortgages are where the interest on your mortgage is reduced by the funds in both your savings accounts and your current accounts. The more you have in your savings account, the less interest you pay on your mortgage, which helps you to repay your mortgage faster and more cheaply in the long term. Your part of the deal is that you don't receive any interest on your savings or your current account.

The main advantage of this is that with base rates low at the moment, savings rates are quite abysmal. So rather than working to give you a small amount of interest, your savings work to cut down your mortgage payments and repay your mortgage faster. In fact, Intelligent Finance claim that there are some customers who have such a high level of savings that they do not pay any interest at all on their mortgage borrowings.

There's more. All your other debts, such as your credit cards or your personal loans are also linked into the nest of products, and this allows you to repay all of your debts at the mortgage rate, which is likely to be a lot lower than your pay rate on those borrowings. A further advantage is that the credit cards and loans remain unsecured borrowings even though they are paid off at the mortgage rate, so if you can't keep up the repayments on those your home is not at risk.

But do not forget that should you be consolidating your debt into your offset mortgage what you are actually doing is turning short-term debts into long-term debts. Consolidated debts should be paid off as quickly as possible otherwise they will cost you more in the long run. You shouldn't be tempted repeatedly to get into more debt.

The UK population is turning to offset mortgages in greater numbers the more time goes on. Since you can see all of your savings and debts in separate accounts even though they work together, people feel safer with them. This is unlike a current account mortgage, where your accounts are mixed together as if you have one massive overdraft.

Essentially, it's like emptying your savings into your mortgage account in order to pay it off, without losing the easy access to the funds.

The people that will find offset mortgages very suited to them are people with volatile incomes, such as the self-employed or people often paid in large bonuses. People with significant amounts of savings will also find offset mortgages useful.

How ever useful it is, you should not forget the interest rates. You pay for the flexibility, so shop around.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

© AskFinancially.com 2009

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