How To Get The Best From A Flexible Offset Mortgage

A flexible offset mortgage could save homeowners money, so it's no wonder that flexible offset mortgages are becoming so popular. The product is called a flexible offset mortgage because of two important features.

The first of these is flexibility with payments. With a flexible offset mortgage borrowers can overpay, underpay, pay in lump sums and take payment holidays. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable. Subject to certain conditions, borrowers can also repay a flexible offset mortgage early. All of these features are usually without any financial penalty. Many standard mortgages now incorporate some flexible features.

The second important feature of a flexible offset mortgage is that it allows mortgage holders to offset their savings (and sometimes their current account balance) against their mortgage debt (and sometimes their credit card debt). The net effect of offsetting is that the borrower pays less interest on the flexible offset mortgage. Interest is charged daily, so any increase in credit balances brings a corresponding decrease in the amount of interest charged that day. This means that potentially over time someone with a flexible offset mortgage pays much less interest than someone with a standard mortgage.

How To Get More From Flexible Mortgage Offset

One way that borrowers can make the most of their offset mortgage is to save. Research shows that borrowers who have savings worth 10 to 20 per cent of the outstanding balance get the best out of offsetting. This is because their interest payments stay low compared with the interest component of a conventional mortgage.

Borrowers can make even more of a flexible offset mortgage by persuading friends and family to put their savings in the borrowers' account. This can be done informally, by arrangement with family members. There are also family offset mortgages that formalise this arrangement by allowing borrowers to link family members' savings accounts to their flexible offset mortgage account. This reduces the amount of interest paid accordingly but does not give borrowers access to their family's savings.

A third way in which borrowers can really save long term with a flexible offset mortgage is to take advantage of the flexibility. This means putting any lump sums into the offset account to reduce the mortgage balance and making as many overpayments as the terms of the flexible offset mortgage will allow. Although a key feature of some flexible mortgages is the ability to draw even more money at the offset interest rate, the less borrowers do this, the shorter their flexible offset mortgage will last and the sooner they will pay it off.

A key decision for many borrowers is which type of flexible offset mortgage to choose. UK borrowers can select either a simple offset mortgage, with a current or savings account linked to a mortgage account, or an offset mortgage which links several types of borrowing. This type of flexible offset mortgage works with separate but linked accounts. There is also the current account mortgage, where all the borrowing is rolled into a single mortgage/current account.

With so many different offset products to choose from, it's best to be canny and seek the professional advice of a offset mortgage brokerage. Advisors will be able to help you decide on the right flexible offset mortgage deal for your financial circumstances.

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