What You Should Look At In An Offset Mortgage Comparison

If you've been hearing about flexible mortgages but aren't sure where to start, it's time to do an offset mortgage comparison. An offset mortgage comparison will help you decide which of the flexible features best suit your financial circumstances.

When offset mortgages started in the UK nine years ago, no one could do an offset mortgage comparison, because there was only one flexible mortgage deal in town - the Virgin One account. This account had a variable rate which was higher than many other mortgage deals on offer, but it did have the all important flexible features.

Before undertaking an offset mortgage comparison, it is important to know a bit about how they work. As the name suggests, offset mortgage deals work by allowing borrowers to offset their borrowings against their savings and their credit against their debts. Here's an example which will help you with an offset mortgage comparison.

Suppose you have an outstanding mortgage of £90,000 and savings of £20,000. You're paying the normal mortgage interest rate on the whole balance of £90,000. Meanwhile, your savings aren't earning you much. With an offset mortgage, you would pay interest only on the overall amount of debt, which would be £70,000.

If you're about to do an offset mortgage comparison, you should also check out whether your mortgage offset deal applies to current accounts and credit cards, because the same principle applies. If you have a credit card debt of £1,000 and your salary of £1,000 is paid into the account, then on your pay date no interest will accrue on the debt. Debit interest will progressively accrue as you spend during the month.

Offset Mortgage Or Current Account Mortgage?

A key question to consider with an offset mortgage comparison is which kind of mortgage offset account you wish to have. Current account mortgages use the offset principle, but all your money is in one account with a borrowing limit. This effectively gives you a massive overdraft. In contrast - and this is important for your offset mortgage comparison - offset mortgages keep all your accounts separate but links them in a financial relationship.

When starting your offset mortgage comparison, remember that many advisers say that offset mortgage deals work best for people who have savings worth 10 to 20 per cent of the outstanding mortgage debt. An important issue in your offset mortgage comparison is the number of flexible features your particular mortgage offset account offers. These include overpayment, underpayment (though usually only after several overpayments), payment holidays and early redemption without penalty. Another important consideration in an offset mortgage comparison is whether you withdraw money up to the limit of the loan, sometimes called a borrow back feature. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

One of the main attractions of an offset mortgage deal is the daily interest calculation. This means whenever you pay any money into the account, you immediately pay less interest on the loan. Over time, this can be a considerable saving. This is why so many people with offset mortgages are able to repay their mortgages early, sometimes by as much as eight years*. So be sure to consider this flexibility when undertaking an offset mortgage comparison.

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© 2007 and 2008 Offset Mortgage Centre | Terms and Conditions | Privacy Statement | We don't charge a fee for admistration of an offset mortgage. The Offset Mortgage Centre is the trading name of The Mortgage Broker Ltd, (a whole of market mortgage broker), which is an appointed representative of Home of Choice Limited, which is authorised and regulated by the Financial Services Authority | Your home may be repossessed if you do not keep up repayments on your mortgage. *Source Barclays Bank: Calculation based on an offset tracker product; repayment mortgage of £100,000 over a 25-year term that has been offset with £20,000 savings, resulting in a reduction in mortgage term of 8 years and 8 months or a saving of £44,867 in overall interest. Calculation assumes balance remains constant throughout the life of the mortgage and that the mortgage loan and savings balance will vary. Outcomes will be either a reduction in payments or a reduction in mortgage term. No interest is paid on balances offset against the mortgage.