Q&A; how offset mortgages work; the basics of offsetting explained
Author: Andy Bedford » Publish Date: 30 October 2012
An offset mortgage has a linked savings or current account, and rather than receiving interest on money paid into that account; you don’t pay interest on the same balance of your mortgage.
You can typically set an offset facility to work in one of two ways. It can either; act as an overpayment facility reducing your mortgage term or reducing your monthly payment.
The main benefit of using an offset account against overpaying your mortgage is that you can readily access the funds in the future without having to refinance; although this would affect your payments or term.
You can also use it to borrow money in advance and only pay for it when you take it out of the offset account; however, you must consider how borrowing extra money will affect interest rates, loan-to-value and arrangement fees.
Offset isn’t technically a type of product, so you can still get all the usual types of rates with an offset facility such as fixed, discount and tracker deals, for example.
The main thing with any mortgage is to make sure any additional cost you pay to get this option justifies the benefits you receive. That’s something we can consider for you in the advice process. You can get more information or to get expert advice on offset here.