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UK Mortgages & Loans -> Offset Mortgage

Offset mortgages are basically the same as a normal current account mortgage. It is just instead of having the whole lot in a single account, all of the accounts are actually held separately.

The concept of an offset mortgage is that it treats the customers’ money as one large amount, with each constituent (mortgage, current, savings account etc) independent to the rest. The effect of this is fundamentally a large overdraft, though it does behave differently.

These mortgages are simply when the interest on the customers’ mortgage is decreased by the sum of money in both of their savings accounts and their current accounts. The more money they have in their savings account, the smaller amount of interest that they will pay on their mortgage, which in the long run will of course help them to repay their mortgage a lot quicker and obviously a lot cheaper in the long term. The disadvantage of these mortgages is that the customer will not receive any interest on their savings or their current account simply because this interest rate is used against reducing the interest rate on their mortgage.

The mortgage interest rate is basically calculated by looking at the state of each of the customers accounts separately and then by offsetting them against each other in order to enable the customer to benefit from their savings and therefore, pay less interest. The current account mortgage has the advantage that it will let the customer benefit in exactly the same way, though it will also act as a bank account meaning that the customers’ salary will be put into the same account as their mortgage.

This is somewhat different to a current account mortgage due to the fact that their mortgage account is kept separate from their savings and income accounts which they have open with the same organisation. Just the same as the current account mortgage, their income and savings will be offset against their mortgage, which will decrease the amount of money that they owe. The interest rate will then be calculated on a daily basis which will therefore, reduce the outstanding balance.

An Offset mortgage will actually work by using the money that the customer has in their savings and current accounts and offsetting these amounts against their mortgage debt. Therefore, instead of earning interest against their cash balances, they will pay less interest on the amount of money that they have borrowed. The point of this offsetting is that, the smaller amount of interest that a person pays, the quicker their mortgage is paid off which will of course mean that they will save more money on interest costs.

A number of these mortgages are even able to be linked with a customers other personal money commitments and engagements. One of the main advantages of these offset mortgages is the outlook of paying reduced interest charges.

All of the clients other debts, like their credit cards or personal loans can also be linked into this nest of products which will let them repay all of their debts at this low mortgage rate, which is most likely to be a lot less than the interest rate which is actually given to these debts.

Another benefit that comes with these mortgages is that the customers’ credit card and loan debts will stay as unsecured borrowings even though they will be paid off using the mortgage interest rate, so if the customer is unable to keep up with the repayments on these debts, their home is not at risk.

These offset mortgages are more suited to those individuals who have with unstable incomes, for instance the self-employed individuals or those who are generally paid by large bonuses. Other people who will find these mortgages very useful are those who have a considerable amount of savings.

If a person does decide to choose an offset mortgage, especially those ones that are linked to their current accounts, they are able to increase the benefits of the mortgage by simply keeping cash in their account for as long as they can each month. Because the interest is calculated each day, every day's credit balance could make a small alteration.

A point which must be considered when looking at these mortgages is that the interest rate given with them is normally higher than that given with the cheapest mortgages rates which are available.

To find the best offset mortgage, simply view our comprehensive list of lenders who will find the best buy for you.