Why Choose A Fixed Rate Offset Mortgage?

There's a lot of activity in the offset mortgage market and there are several providers who now offer fixed rate offset mortgage deals. But what's in it for the borrower? Surely, the point of an offset mortgage is flexibility, so why should anyone tie themselves in to a fixed rate offset mortgage?

The answer is clear. It's because many people like the security of knowing what interest rate they will pay over a long period. With a fixed rate offset mortgage, borrowers will know exactly what they will pay every month for the fixed rate period. There's nothing new in that; fixed rates have been part of the mortgage scene for years. What is new, though, is that offset mortgage providers are offering fixed rate offset mortgage deals for longer periods. Some offer a fixed rate offset mortgage for as long as ten years.

Fixed Rate Advantages And Disadvantages

The advantage of having a fixed rate offset mortgage deal is that your payments are fixed. Even if the Bank of England raises the base rate, as has happened this year, you will still pay the same amount. A fixed rate offset mortgage deal works well when interest rates are rising, particularly if the fixed rate is competitive, but what about when mortgage interest rates fall?

If you have a long term fixed rate offset mortgage, then even if interest rates fall you still have to pay the same amount. An alternative to a fixed rate offset mortgage is a capped rate offset mortgage, which means that there is a cap on the interest rate that will apply. If the interest rate falls, so does your mortgage payment as long as this is below the capped rate. Interest rates for a fixed rate offset mortgage will usually be less than the variable rate interest rate. Lenders are also like to reduce the rate the longer the period of the fixed rate offset mortgage. Remember to pay attention to the APR with a fixed rate offset mortgage, as this will give a better guide to the overall interest rate you will be repaying.

Offsetting With A Fixed Rate

That aside, a fixed rate offset mortgage still offers all the benefits of offsetting. That means that when your credit balances are high, the interest you pay is less. It also means that you can overpay, underpay, pay in lump sums and take payment holidays - and there shouldn't be a charge for this. However remember underpayments and payment holidays could increase the mortgage term and/or the total amount payable. One thing to look out for with a fixed rate offset mortgage is early repayment charges. While most offset products do not have these, fixed rate offset mortgage lenders may charge for early repayment during the fixed rate period. It's worth having a look at these charges if you know you're likely to switch mortgages.

There are several offset mortgage lenders who offer fixed rate offset deals. These include First Direct, Leeds Building Society, Scottish Widows Bank and Intelligent Finance. However, mortgage lenders release new deals frequently, so it is imperitive that you talk to our professional mortgage advisors for advice on the right fixed rate offset mortgage deal for you.

Please note that The Offset Mortgage Centre cannot advise on or arrange mortgages from First Direct.

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