Offset Account Definition

Offset Account Definition | It's Not A Blank Cheque

FSA RegulationsThe simplest way to explain the offset account definition is this: more money in your offset account means less interest paid on your mortgage. But that's not all there is to the offset account definition. How your offset account works will depend on the type of offset account you have and the features that are included. It will also depend on your own financial management skills.

People first heard the offset account definition in the late 1990s with offset account launches by a number of providers across the UK. The offset account was an Australian import that soon became very popular in the UK*. In fact, the offset account definition is now so popular that offset accounts are likely to account for nearly half of the UK mortgage market within the next five years**.

But what exactly does the offset account definition include? Basically, there are two types of offset mortgage products. These are offset mortgages themselves and current account mortgages. Let's take a look at the last of these first.

Current Account Mortgages

The offset account definition of a current account mortgage is a mortgage where borrowers have a single account for all their borrowings. In its most basic form the offset account definition of this type of account includes a current account and a mortgage, though some current account mortgages also allow people to link their savings and to consolidate their other debts.

The other offset account definition is one where borrowers maintain separate accounts for their mortgage, The Right Mortgage For You Imageloans, credit cards,current account and savings,but all the accounts are linked together for the purpose of reducing the interest paid on the mortgage. Offset mortgages of this type are even more popular with UK borrowers than current account mortgages. Perhaps this is because with offset mortgages, borrowers can still see credit balances in some accounts. In contrast, with current account mortgages, borrowers are always in the red.

Another part of the offset account definition is the borrowing limit imposed on offset accounts. Whether borrowers have an offset mortgage or a current account mortgage, the offset mortgage lender will set a limit up to which borrowers can withdraw money without needing to reapply. This is where borrowers' own financial habits come in. It's worth remembering that an offset mortgage account is not a blank cheque - anything that is withdrawn will eventually have to be repaid with interest.

Flexible Offset Accounts

Finally, the offset account definition includes flexibility. This is not just about being able to withdraw (or draw down) money as mentioned above. It is also about the way that borrowers manage their mortgage payments. Most offset mortgage lenders allow borrowers to repay a certain percentage of the offset mortgage each year without penalty. The usual limits are between five and ten per cent. There is also the option to make overpayment and subsequently to make underpayments up to the level of previous overpayments. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable

There may also be flexibility in the way offset mortgage lenders actually lend the money. There is a wide range of deals on offer and some offset mortgage providers allow borrowers to switch deals and payment schemes and move the mortgage to a new property without penalty. And there's room in the offset account definition for even more flexibility, with special schemes for first time buyers and buy to let landlords, among others. It's no wonder the offset account definition is so popular with UK offset mortgage holders.

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