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Offset Mortgages and Current Account Mortgages

Offset mortgages may seem like a complicated option, but when you understand the basic principles, they could end up saving you a fair bit of money.

These only really work if you have money in savings, and the more the better. When you take an offset mortgage you also get a savings account in your name which is linked to your mortgage account. Let’s say that your mortgage balance is £100,000, and lets also say that you have £30000 in savings. Most people might say why not pay off a large chunk of your mortgage, and that’s not a bad idea, but you might have plans for that money, maybe a university fund for your child or you’re saving for a conservatory. If you need the flexibility of being able to get hold of your cash, this is how an offset will help you. The savings of £30000 offset the mortgage balance meaning that you only pay mortgage interest on £70000, the difference.

The majority of lenders will give you the choice what you do with that saving. You can either take a reduction in monthly payments, in which case you’re saving on your monthly outgoings and the mortgage gets paid off over the original term. Or, you can opt to shorten the term, this works by keeping your mortgage payments the same, and because the interest element of your payment is reduced, you in fact pay more of the capital each month equivalent to the saved interest. This way, you might find that your mortgage gets paid off years earlier.

Some lenders will allow you to offset a current account as well as savings, which means that any money in your current account also gets offset. They do say ‘look after the pennies and the pounds look after themselves’.

A current account mortgage is a bit like an offset mortgage and current account, but you get a single account which is a combination of the two. Imagine having a current account with an overdraft the same as your mortgage balance, and that’s basically it. You get a cheque book and debit card like a normal current account, and if you keep any surplus cash in the account each month, your balance will reduce faster (meaning you should pay your mortgage off sooner) costing you less in interest in the end.

You need to compare the whole market using a broker who will give you all the options, if you don’t have a lot of cash savings, there may be a cheaper rate available on a standard mortgage which will be cheaper for you over all. Please call us so we can assess your situation and advise you which is the best way for you, or if you prefer, click on the enquiry link, and we’ll call you back.

 

Please call us today on 01480 393393 for free professional advice and fast quotes.