Offset Mortgages  Valuation

Offset Mortgages

Offset mortgages are a variation on current account mortgages. Originally devised in Australia...

Get a Free Quote Advantages of an Offset Mortgage

The theory of an offset mortgage is very simple and seems to make perfect sense as a way of reducing the interest payable on the mortgage amount borrowed. As interest is calculated on a daily basis, the charges on an offset mortgage are usually better than if the entire amount of the mortgage remains payable.

Who Benefits from an Offset Account
It is generally accepted that offset accounts have a slightly higher interest rate than equivalent discounted mortgages that are commonly available from high street lenders. For this reason, offset mortgages are not necessarily suitable for borrowers without substantial savings or those who are not going to take advantage of the overpayment option to pay off the mortgage early.

A marketplace survey for Bradford & Bingley suggested that in order to benefit from an offset mortgage, a borrower would have to have on average 30,000 of savings for every 100,000 of mortgage.

Of course, this is not a straightforward equation and other individuals in atypical situations might also benefit from an offset mortgage, without the need to have a large lump sum of savings.

Self-employed people, in particular, can benefit from the flexibility of the offset mortgage. With an offset mortgage, some months the borrower will be able to pay a greater amount towards their mortgage and other months they may pay less towards the mortgage. This is ideal for those who have a variable income.

Similarly, self-employed individuals normally save cash towards their tax bill or annual costs such as leases and insurance premiums. It will be necessary to access the cash at some point in the foreseeable future but, in the meantime, the savings can be used to reduce the balance of the mortgage and therefore the interest that the borrower is paying on the mortgage.

It is not only the self-employed who can benefit from an offset mortgage. This type of mortgage can also work well with people who earn irregular commissions or bonuses and wish to use them to pay off against the mortgage, but do not want to rely on such an unpredictable income.

Finally, it is worth noting that offset mortgages are usually calculated on an affordability basis and not on a simple income multiplier. This way, first time buyers, or those with unusual situations may be able to obtain a larger mortgage than would be allowed with a standard, traditional mortgage.

Summary
Bullet Point An offset mortgage is not going to suit every borrower, so it is important to consider what YOU would gain from this type of mortgage;
Bullet Point typically, those who benefit from offset mortgages include self-employed individuals with irregular income or with savings that need to be accessed in the foreseeable future;
Bullet Point borrowers who receive irregular bonuses or commission payments could also benefit from an offset mortgage.

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