Offset Mortgage UK

Offset Mortgage UK Guide To Flexible Mortgage Loans

Red TapeThe offset mortgage UK market is growing, with around 30 providers of this flexible mortgage loan. Offset mortgages work by allowing you to link credit and debt accounts to reduce the interest that you pay*.

Most offset mortgages link savings accounts to mortgage accounts. This means that if you have some savings, these are offset against the amount owed on your mortgage. Interest is charged only on the difference. Over time, this could result in a considerable saving in interest paid.

Here's a brief guide to the inner workings of an offset mortgage. UK offset mortgage providers may offer deals like this. If you have £20,000 worth of savings in a savings account and a mortgage of £100,000, you can apply for an offset mortgage UK account and pay interest only on the difference, which is £80,000.

Many offset mortgage UK offers also allow you to link credit cards to your current account, or to link mortgages, credit cards, savings and loans together. Although all the accounts remain separate and can be managed separately, offset mortgage UK account holders benefit from the reduced interest payments.

Offset mortgage UK accounts are different from current account mortgages, which offer similar flexibility. However, current account mortgage holders have only one account with a very large overdraft and manage all their borrowings and credit in one pot. Instead of earning interest on your savings or on any funds added to your current account, you pay less interest on your loan. And as your credit balances are not actually earning interest, there's no tax to pay on interest. So in effect this does not preclude you from having a stand alone savings ISA – it just won’t be offset against your mortgage balance.

Offset Mortgage Interest Rates

Interest rates are a key part of any mortgage deal - and offset mortgage UK deals are no different. In most cases, these are variable rates linked to the Bank of England's base rate. With an offset mortgage UK customers can often Advertbenefit from repaying their credit card balance at the mortgage interest rate, which is usually considerably less (Not all lenders offer this facility). According to Interactive Investor (04/04/2007) the average credit card annual percentage rate for purchases is around 16.1 per cent. With an offset mortgage UK account holders could repay their credit cards at a typical interest rate of 6.45 per cent*** depending on the provider.

Over time, offsetting mortgage and debt against credit can reap dividends for account holders. It has been estimated that an offset mortgage can shave eight years and eight months off a normal 25 year mortgage and cut the interest repaid by several thousand pounds**. This is because although people are paying less interest, they are still making normal mortgage payments - and are effectively over paying on their offset mortgage UK account.

Best of all, an offset mortgage is flexible. Most offset mortgages in the UK allow people to overpay, under pay and take payment holidays depending on their circumstances. This system works particularly well for people with variable income levels. It also allows people to plan for changes in circumstances. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable.

It's been about nine years since the first flexible offset mortgage offer was introduced by Virgin and the Royal Bank of Scotland. Since then, this financial product has grown in popularity, according to Mortgage Strategy (April 2007) offset mortgages now account for 10% of the total mortgage market and it forcasts that this is set to grow to a staggering 30% by 2009. Given its flexibility, it seems likely that the offset mortgage UK market is set for continued growth.

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