How To Perform An Offset Mortgage Comparison

How To Perform An Offset Mortgage Comparison 1

How to​ Perform An Offset Mortgage Comparison
An offset mortgage comparison is​ not as​ straightforward as​ it​ would first seem .​
This article will give an​ overview of​ an​ offset mortgage and discuss how to​ compare offset mortgages to​ help you​ find the​ right one.
Offset mortgages are fairly new to​ the​ UK market place .​
They were introduced to​ the​ UK in​ the​ late 1990s and originated from Australia .​
They were seen as​ a​ niche product,​ but this has changed since interest rates have decreased and the​ market has opened up .​
The principle of​ offset mortgages is​ relatively simple – when a​ borrower takes out an​ offset mortgage,​ it​ is​ linked to​ their savings and/or current account .​
This allows the​ borrower to​ offset their mortgage debt against the​ money in​ their accounts,​ thus reducing the​ amount of​ interest owed .​
For example,​ if​ a​ borrower has a​ £250,​000 mortgage and £50,​000 in​ savings,​ interest will only be charged on​ the​ difference,​ i.e .​
The range of​ offset mortgages within the​ market place has increased in​ recent years and consequently,​ offset mortgages have becoming increasing complex .​
For an​ offset mortgage comparison,​ you​ can’t just compare the​ Annual Percentage Rate (APR) as​ you​ would with a​ traditional type of​ mortgage .​
The APR has limited value with an​ offset mortgage because nothing else is​ taken into account,​ such as​ the​ flexibility of​ the​ account,​ set-up charges,​ and Early Redemption Charges (ERC).
To obtain an​ offset mortgage comparison,​ it​ is​ important to​ look at​ the​ key aspects of​ an​ offset mortgage and to​ ask yourself – ‘what can my offset mortgage do for me?’ Key aspects include:
Flexibility of​ the​ account
Overpayments - are you​ likely to​ make frequent overpayments into your mortgage account? If so,​ you​ will want an​ offset mortgage that does not penalise for frequent overpayments or​ penalise you​ for paying off your mortgage early.
Underpayments and/or payment holidays - do you​ want a​ career break with underpayments or​ payment holidays from your mortgage? Not all offset mortgages offer underpayments or​ payment holidays,​ whereas some types of​ offset mortgage offer the​ service,​ but you​ usually have to​ make a​ certain amount of​ overpayments before you​ are eligible.
Credit limit - will you​ need a​ lump sum of​ cash in​ the​ future,​ for example,​ home renovations? Some offset mortgages allow a​ credit limit on​ top of​ the​ agreed mortgage,​ depending on​ the​ amount of​ equity in​ the​ property,​ which acts as​ a​ loan facility.
Debt - are you​ carrying credit debt and personal loans? Some offset mortgages allow the​ debt to​ be incorporated into the​ mortgage package,​ possibly leading to​ a​ lower repayment rate .​
The debts can also remain unsecured.
Number of​ accounts - can you​ add more than one savings/current account to​ your mortgage? Do you​ have family members that are willing to​ link their bank accounts to​ your mortgage debt? If so,​ you​ can further reduce your interest payments.
Charges and interest rates
At first glance,​ an​ offset mortgage with an​ initial low APR for two years and low arrangement fees may look appealing,​ but if​ it​ has an​ ERC and no underpayment facilities,​ it​ would not be suitable if​ you​ wanted to​ make frequent overpayments to​ pay your mortgage off early,​ but were planning to​ have a​ career break in​ the​ future.
There are many lenders in​ the​ mortgage market that offer different types of​ offset mortgages .​
To guide you​ through the​ intricacies of​ an​ offset mortgage comparison it​ would be best to​ seek advice .​
An independent mortgage broker can advise you​ and help you​ with an​ offset mortgage comparison to​ ensure you​ can have the​ best offset mortgage for your needs.

How To Perform An Offset Mortgage Comparison

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