Flexible mortgages
Offset Mortgages
Offset mortgages are a slightly different slight on a normal
current account mortgage. As with a current account mortgage,
an offset mortgage sees your salary paid in monthly, permits
overpayment, underpayment, lump sum deposits, payment holidays
and all the other features of a flexible mortgage, as well
as giving you a cheque book, debit card and the facility
to set up direct debits.
So what exactly is the difference?
Instead of lumping all the accounts (current account, mortgage
and savings) into one and having a single balance, the different
components are still kept separate from the customer's point
of view.
The most obvious difference from the customer's point of
view is that you are not presented with an account balance
that is tens of thousands of pounds overdrawn each time
you go to a cashpoint, and some people find that it is less
daunting and easier to manage their affairs when they have
the perception that the money is in different accounts.
Despite being held separately, the current account and
savings accounts still work towards reducing the mortgage
debt. However, unlike a current account mortgage, the three
different accounts are not usually charged at the same rate
of interest.
Some lenders charge a set rate of interest on the current
account and the savings account, while others will 'sweep'
the marketplace and apply the best rate of interest that
can be found for each particular component. The balance
in the two accounts is then added together and the total
is then offset against the mortgage.
This essential means that interest is then calculated
on the mortgage debt minus the balance in the other two
accounts, in much the same way as a normal current account
mortgage. Since it is not normally possible to find savings
or current accounts that pay a rate of interest as high
as the Standard Variable Rate on a mortgage, the differing
interest rates is likely to represent a weakness in this
type of loan in comparison to an all-in-one current account.
