Are offset mortgage deals a good idea?
26-Sep-2012 | Wilmslow | General Article (Non-News)
Wilmslow, Cheshire ( Newsbox ) September 24, 2012 - One of the key concerns for borrowers is how they can pay off their mortgage early. One way is to take out an offset mortgage, which is perceived as being a way for homeowners to pay off their debts before the loan term ends.
"One of the key concerns for borrowers is how they can pay off their mortgage early. One way is to take out an offset mortgage, which is perceived as being a way for homeowners to pay off their debts before the loan term ends." [Pre-Approved Quote]
Most people have savings, however large or small, and his money can be used to cancel out some of the outstanding mortgage debt. Interest is calculated daily, so every pound will go towards reducing interest paid on borrowing.
The main principle of an offset mortgage is that your savings are set against your debt, and by earning interest on your savings you don't pay this on the same amount of your mortgage debt.
Over the course of 25 years, this can save borrowers thousands what's more it's tax efficient.
Borrowers can achieve the same effect as overpaying a mortgage, but if you need to you can get the money back at any time.
There are some offset mortgage products that allow you to link your current account as well as your savings account.
When offset mortgages were introduced, the interest rate was higher which cancelled out some of the benefits, but now offset providers can sometimes beat normal mortgage rates making them much more financially viable.
Initially offset mortgages were current account mortgages (CAMs) which simply linked a current account to the mortgage borrowing. The two were combined, and any money in the current account was offset against the outstanding mortgage, the more money in the current account, the less interest you paid. Borrowers could also add their savings into the CAM to reduce the debt balance.
Richard Ignatowicz is a whole of market broker at Mortgage Savers. He says:
"There is no doubt that flexible mortgages are a very good product, however, our experience has been that the vast majority of our clients who took them up never really took advantage of the benefits.
"Just a few pounds (say £25-50)overpayment per month can make a huge difference in the long term but in reality most people did not do this, the real world takes over and other things take priority and there is always the false belief that "we will start next month".
"The deals are usually a bit more expensive to a standard mortgage product as you are paying for all the bells and whistles so my suggestion is, give it serious consideration but make sure you actually use the mortgage facilities otherwise you are costing yourself money!"
Notes to Editors
Mortgage Savers is a "whole of market" mortgage brokerage. We are fully qualified consultants, not sales reps; offering totally impartial help and guidance. We help people find the best residential, commercial or buy-to-let mortgage product available from over 200 lenders offering in excess of 10,000 mortgage products. To find out why you should use a broker who is also an investor click here . For more information on Mortgage Savers click here
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