Offset Mortgage

An Offset Mortgage means that interest on your home loan is reduced by the funds in your savings account and your current account. The more you have in your savings account, the less interest you pay on your offset mortgage. This helps you to repay your loan faster and more cheaply in the long term. The downside is that you don't receive any interest on your savings or current accounts.

The main advantage of an offset mortgage is that with base rates low at the moment savings rates are also poor. Rather than earn a small amount of interest your savings work to reduce your home loan repaying it more quickly. Some lenders claim that they have customers who have such high levels of savings that they do not pay any interest on their home loans at all.

All your other types of finance such as your credit cards or personal loans can also be linked into this type products. This allows you to repay all of your debts at the same rate as you home loan. This is likely to be considerably lower than the normal rate on loans and credit cards. However any credit card and loan debt remains unsecured borrowing even though they are paid off at the prevailing home loan rate. If you can't keep up the repayments on the credit card / loan part of your borrowing your home is not at risk.

Its important to remember that should your consolidate your finances into this type of product you are turning short term debts into long term ones. Consolidated debts should be paid off as quickly as possible, otherwise they will cost much more in the long run.

Many people in the UK today are turning to this type of borrowing. The major benefit is that you can see all of your savings and debts in separate accounts even though they work together. This is unlike a current account mortgage where your accounts are mixed together. By 2005, it is expected that this type of home loan will make up 25% of the market. This type of product is best suited to individuals with volatile incomes, such as the self-employed or individuals that receive large cash sums such as bonuses. People with significant amounts of savings could also find this type of product useful.

Offset Mortgages :