A comparison of offset mortgages is not as easy as it might seem at first. This article will explain what an offset mortgage is and how to compare them so you can find the right one for you.
Offset mortgages have only been around for a short time on the UK market. They came from Australia and were brought to the UK in the late 1990s. People used to think of them as a niche product, but that's changed now that interest rates have gone down and the market has grown. Offset mortgages are based on a simple idea: when a borrower gets an offset mortgage, it is linked to his or her savings and/or checking account. This lets the borrower use the money in their accounts to pay down their mortgage debt, which lowers the amount of interest they owe. For example, if a borrower has a GBP250,000 mortgage and GBP50,000 in savings, only the difference, or GBP200,000, will be charged interest.
In recent years, the number of offset mortgages on the market has grown, and as a result, offset mortgages have become more complicated. You can't just compare the Annual Percentage Rate (APR) for an offset mortgage like you would for a traditional mortgage. With an offset mortgage, the APR doesn't mean much because it doesn't take into account things like how flexible the account is, how much it costs to set up, and how much it costs to get out of it early (ERC).
To get a good comparison of offset mortgages, you should look at the most important parts of an offset mortgage and ask yourself, "What can my offset mortgage do for me?" Some important things are:
How flexible the account is
Overpayments: Do you tend to pay more than you need to on your mortgage? If that's the case, you'll want an offset mortgage that doesn't punish you for making frequent extra payments or for paying off your mortgage early.
Underpayments and/or payment holidays: Do you want a career break from your mortgage with underpayments or payment holidays? Not all offset mortgages let you make underpayments or skip payments. However, some offset mortgages do let you do these things, but you usually have to make a certain number of overpayments first.
Credit limit: Will you need a large sum of money in the future, like for home repairs? Some offset mortgages let you take out a loan on top of the agreed-upon mortgage, depending on how much equity you have in your home.
Debt: Do you have personal loans and credit card debt? Some offset mortgages let the debt be added to the mortgage package, which could lead to a lower rate of repayment. Debts can also continue to be unsecured.
Number of accounts: Can you add more than one savings or checking account to your mortgage? Do you have family members who would be willing to link their bank accounts to your mortgage debt? If so, you can cut your interest payments even more.
Interest rates and fees
At first glance, an offset mortgage with a low APR for the first two years and low arrangement fees may seem appealing. However, if it has an ERC and no underpayment options, it wouldn't be a good choice if you wanted to make frequent overpayments to pay off your mortgage early but planned to take a career break in the future.
On the mortgage market, there are many lenders who offer different kinds of offset mortgages. To help you figure out how to compare offset mortgages, it would be best to ask for help. An independent mortgage broker can give you advice and help you compare offset mortgages to make sure you get the best one for your needs.
