Offset Mortgages

• What’s an offset mortgage?

Best way to describe what that means for someone who's actually gotten also mortgage, is to take the sort of very simple example, so if I have a 200 thousand pounds mortgage and I have 50 thousand pounds worth of savings, I have to save this in my latest savings account at the end of the day they take 50 thousand pounds from savings deducted from the 200 thousand pounds mortgage it's giving me a net balance of a 150 thousand pounds, and that is what they charge interest on not the full 200 thousand pounds, so in other words by having the savings I've saved myself an interest charge each month equivalent to the amount of the savings.

• What’s the benefits of having an Offset Mortgage?

So, once you have your savings in the savings account and you're getting the benefit of having it deducted from the mortgage balance, you're saving on interest each month there being charge on the mortgage, that interest can be used in various ways. One of the main ways that people will use is they will keep their mortgage payment the same every month. But because less interest is being charged, you're actually paying a little more than you need to know that extra money can be usually by most lenders automatically just started to be deducted from the mortgage account itself, which means the mortgage is dropping month in month out and you at the end of it, you could literally save months or years off the term of your mortgage and that saving can be quite considerable over the full mortgage term. Alternatively, there are all my mortgage payment to reduce in line with their slightly reduced net balance at which point of course then your direct debit is reducing and that's an immediate cash flow savings you've right there then every month straight from your own account.

• Do all offset mortgages work in the exact same way?

I've said mortgages do not actually work in the same way with all providers, any adviser is looking to sell more mortgages you should look at the term’s conditions and the features, the benefits that come with it, so some of them will allow the interest and payments each month to reduce and therefore you can reduce your direct debits automatically.

• Are offset mortgages more complicated than others?

One of the reason people think that offset mortgages are more complicated in others is that providers have different terms of conditions they've got different management mechanisms for those actual accounts. So, for instance not all of them will allow you to access the money in the saving account, the same way some of them have telephone banking and internet banking others actually have a cash card that might come with it, some will allow direct debit to go out of it and into it, so it acts like a current account for others it's just a basic savings account. So, an adviser should always check with their clients exactly what level of functionality they need and then check with a lender to make sure they're going to get back.

• What about the interest saved?

Also, with regards to the interest that you save some lenders will automatically allow you to have the interest taken off the mortgage each month, others will specify that you determine how those savings is to actually be apportioned, i.e. would you like your monthly payments reduce each month or would you like it taken off the actual mortgage. Some will automatically keep the term the same reduced bonus others won't, you need to specify to the lender which way you actually want it to go. So ultimately there are several different factors with regards to an offset mortgage which are not the same as looking at what's the best rate all the best fees or how quickly they can the mortgage off for hours. This is an account which can actually last someone for years once, they've got the right functionality they are likely to keep that account that offset account for many many years because they don't need anything else so long as the products actually acceptable to them.

• How does an offset mortgage compare with a ‘traditional’ mortgage?

One of the main differences between offset mortgage to traditional mortgage is doing over payments. If you make an over payment on a traditional mortgage that money is then taken off the mortgage balance immediately, if you need access to it again the only way to get it is via further advance if your circumstances have changed or the motive value isn't the way that it you want it to be it can be difficult to get that further advanced also, they will charge further advanced rates of interest.

• How could an offset mortgage help?

So, there's several disadvantages to getting your money back on a traditional mortgage, but in an offset mortgage you take that over payment you put it into the saving account that means that is actually in your savings account, not actually the lender savings account so you can have access to it whenever you like for whatever reason you like and that could be for certain reasons that traditional lenders don't like, like tax bills for instance or weddings all of they don't usually mind people's families in marriage. However, when you get the money back from the savings account that means that the offset mortgage balance and net mortgage balance is going up there, so you're being charged at the base rate of your mortgage not further advanced rates you don't have to apply for it is just a return of your money.