Offset Mortgages  Variations

Offset Mortgages

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

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Offset mortgages follow a similar pattern to other types of mortgages, with links to one or more savings accounts or current accounts. Most mortgage providers offer a choice of three different offset mortgage types:
Bullet Point fixed rate;
Bullet Point discounted rate;
Bullet Point standard variable rate (SVR).

When offset mortgages were introduced to the UK mortgage market, interest rates were pitched at around 1 percent higher than for corresponding conventional mortgages. With increasing competition in this sector, the interest rate gap has narrowed, in recent times.

If you can be bothered to arrange a remortgage every 2 to 3 years, you could possibly continue to find an alternative mortgage at a lower rate of interest than an offset deal. However, over longer periods, offset mortgages are extremely competitive and offer the flexibility for borrowers to make underpayments or overpayments depending on their financial circumstances.

Statistics produced by the Royal Bank of Scotland indicate that an increasing number of borrowers are choosing to repay their mortgages early, so offset mortgages (which facilitate this practice) are likely to continue to increase in popularity.

Offset Mortgages - Brokers
Some mortgage brokers are ambivalent about offset mortgages.

Because borrowers who choose offset mortgages will probably remortgage less frequently than conventional mortgage holders, some mortgage brokers have chosen not to promote offset mortgages to any great extent. To counteract this tendency, other offset mortgage providers have increased the procuration fees that they offer to brokers for marketing this type of product.

Ironically, availability of these higher procuration fees has led to accusations that a number of mortgage brokers have been selling offset mortgages to clients who would be better off with alternative mortgage products, simply to earn the higher fees associated with offset mortgages.

Nevertheless, a reputable mortgage broker should give independent and unbiased advice regarding offset mortgage options.

Summary
Bullet Point Offset mortgages are generally offered at an interest rate of 1 percent higher than the deals offered on standard mortgages;
Bullet Point if a borrower is prepared to change mortgages every 2 to 3 years to make the most of the current deals, then it is possible that this would offer a better financial proposition than an offset mortgage;
Bullet Point bear in mind that not all brokers will advocate offset mortgages as they are aware that the chances of securing repeat work in a few years time is much less.

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