Cheapest Offset Mortgages | Are They The Best Deal For You?

Are The Cheapest Offset Mortgages The Best?

Prospective homebuyers might be tempted by the cheapest offset mortgages, but are the cheapest offset mortgages always the best. What appear to be the cheapest offset mortgages may come in many guises, with headline interest rates that are guaranteed to get attention. For example, what appears to be one of the cheapest offset mortgages might be one that offers a low initial interest rate, but it's worth checking how long that low interest period is. With some offset mortgage deal, the low interest rate could last only six months before reverting to another, higher rate.

It's also worth examining fixed rate deals. Some of these may appear to be the cheapest offset mortgages, especially if you expect the Bank of England base rate to rise, but if it falls, you might find that what looked a good deal is no longer one of the cheapest offset mortgagages. Instead, you'll be looking enviously at your neighbours who have low rate mortgages while you're tied into a long term fixed rate deal.

Offset Mortgage Tie-Ins

And that's another factor when considering the cheapest offset mortgages - the tie-ins. The cheapest offset mortgages might not be so cheap if it's going to cost you a packet to get out of the deal. Look out for early repayment or redemption charges, administration fees, exit fees and other fees that might drive up the cost of the cheapest offset mortgages.

Returning to interest rates, another factor that will determine the cheapest offset mortgages will be the amount that you need to borrow. Illustrations which show the interest rate on the cheapest offset mortgages assume certain things. They assume that you will have a loan of 85 to 90 per cent of the property value (depending on the lender) and that there are no adverse credit circumstances. People who need to borrow about 90 per cent of the property value (and above 75 per cent with some lenders) may have to pay a higher lending charge. This is usually a set percentage of the amount over the lender's loan floor. And if your credit history is poor, then it is very unlikely that you will be able to benefit from the cheapest offset mortgages.

Beyond The Headlines Of Offset Mortgages

Borrowers need to look beyond the headlines of the cheapest offset mortgages and find out the real interest rate they will be paying once any preferential rates and standard rates are combined. This is usually expressed as the overall cost for comparison which is an annual percentage rate (APR). This gives borrowers a better idea of the cheapest offset mortgages, but even this does not tell the whole story. Since many UK borrowers move home or change mortgages regularly, another indicator of the cheapest offset mortgages is what they will cost you over the period that you intend to keep the mortgage. This means that a deal which has a high annual percentage rate but a low initial discounted rate might be one of the cheapest offset mortgages for someone who is planning to sell up or change mortgage providers within a few years.

All of these factors (and the fees) need to be weighed up and added to give UK consumers an idea of the true cost of having a mortgage over the period they intend to keep it. Only then will they be able to identify the cheapest offset mortgages for them.

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