Recent mortgage Q&A
What are the benefits of an offset mortgage?
There are two types of mortgage that are very similar and offer almost identical advantages. These are offset mortgages and current account mortgages. The main difference between the two is that in a current account mortgage, the offsetting is carried out only with the current account that is combined with the mortgage. Therefore, all money that is to be used for offsetting purposes must be in that specific current account. In a general offset mortgage you have much more flexibility in the accounts that you can link to your mortgage account in order to offset you current account, or even your savings account, so that you pay less interest.
When is it best to have an offset mortgage
Offset mortgages sound pretty good in general, but they definitely provide a better deal for some people while not providing any benefits for others. If you are the sort of person who has a reasonable amount of savings that you need to keep in an accessible account then you are definitely the sort of person who would benefit from having an offset mortgage. The money you have in your linked accounts will be deducted from your mortgage debt before your interest is calculated. Therefore the more you have in your offset accounts, the less interest you will pay, which can mount up to a significant amount of savings in the long term.
Reducing your interest payments is not the only way you can benefit from having an offset mortgage. Instead of reducing your payments, you can also opt to continue to pay the same amount but as you are paying less interest you will then pay off more of the mortgage debt with each payment and so you will then reduce the term of your mortgage. One thing you should note is that any savings accounts that are linked to an offset mortgage will not be eligible for interest during that time. Therefore you should find out what interest you would get if you were to allow your savings to collect interest and then compare that to the interest savings you would make if you used the money to offset against your mortgage debt. In most cases you will find that you benefit more from using savings as an offset than collecting interest.
How else can an offset mortgage provide benefits
An offset mortgage can also be an alternative way for parents, or other family members, to provide financial assistance to a younger first time buyers without losing access to their money and without having to act as a guarantor for the mortgage debt. This is because some offset mortgages allow the accounts of other family members to be linked to the offset mortgage in order to help to reduce the mortgage payments. The owner of the account will lose any ability to earn interest on those savings, but otherwise will retain full control of the account in all other ways. The borrower will also need to make sure that should those accounts become depleted that they are in a position to pay the full repayment amount.
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