Offset mortgages, what are they and why would you chose to have one?
It’s a product that connects your savings account (sometimes current account) to your mortgage. The offset bit comes into play because, by connecting your savings account to your mortgage you can offset the amount of interest you pay because your savings are deducted from your outstanding loan.
By choosing this type of mortgage you could benefit by:
- Re-arranging savings that aren’t working in your favour (your savings are also protected by the FSCS up to £85,000).
- Reducing your monthly payments.
- Paying your loan off quicker by making the same monthly payments as you would on a normal mortgage, meaning you would be making overpayments.
- Family members can help you onto the property ladder by choosing to offset their savings against your mortgage.
However when working out if an offset mortgage is any good for you, take into consideration that:
- They work better when you have significant savings.
- You won’t be earning interest on your savings. Although the mortgage interest may be higher than the interest you would have accrued on those savings.
- Interest rates can be higher for offset mortgage products.
- Larger deposits are usually required at around 25%.
As with any mortgage you will need to ensure you meet the criteria of the lender with regards to affordability, income situation and credit rating.
Not all lenders offer offset mortgage products and making multiple enquiries can affect your credit rating.
Working with an advisor or broker with access to the entire market can make it easier as they do the hard work to match you with a lender that meets your individual circumstances.
Make an enquiry with us and we’d be happy to provide you with further information, or put you in contact with a specialist advisor.