Are The Cheapest Offset Mortgages The Best?

Prospective homebuyers might be tempted by what appears to be 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 deals 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 deals, the low interest rate could last only six months before reverting to another, higher rate.

Tie-ins are another factor when considering the cheapest offset mortgages. The mortgage might not be so cheap if it's going to cost you a fortune 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. The key to a successful mortgage is planning for the long-term.

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 around 60% of the property value, depending on the lender, and that there are no adverse credit circumstances. People who need to borrow about 75% of the property value may have to pay for the privilege.

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, as it almost certainly will in the coming months. In this low rate environment, it's crucial to lock into a cheap deal when you can. 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 this time next year.

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 mortgage 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 fees need to be weighed up and added to give you, the borrower, an idea of the true cost of having a mortgage over the period you intend to keep it. Only then will you be able to identify the cheapest offset mortgages for them. So talk to a mortgage adviser about what the cheapest offset mortgages really are, behind the rates and the advertising.

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