How Standard Mortgages And Offset Mortgages Compare

If you've been hearing about flexible mortgages, then you'll want to know how mortgages and offset mortgages compare to each other. First of all, let's look at how offset mortgages compare to standard mortgages in terms of payments. With standard mortgages, borrowers have a mortgage and make regular monthly payments till it's paid off. If we compare offset mortgages, we see that the system is slightly different.

For many people, offset mortgages compare well to standard mortgages because they are flexible. That means that borrowers can change the way they pay off the mortgage to suit their financial circumstances at the time. However underpayments and payment holidays could increase the mortgage term and/or the total amount payable. Offset mortgage accounts offer flexible payment schemes, so borrowers can overpay, underpay, pay in lump sums, take payment holidays and repay the entire mortgage early, usually without penalty. This is a major way in which offset mortgages compare well to standard mortgages. With offset mortgages becoming more popular, many standard mortgages now offer flexible payment features too.

Standard And Offset Mortgages Compared

So, how do current account and offset mortgages compare to standard mortgages in the way they work? First of all there are two types of offset mortgages. The simple offset allows someone to link a current account or savings account to amortgage account to reduce the interest paid. The current account mortgage puts everything into one pot but has the same effect. Although the saver makes mortgage payments as normal, the saver is effectively overpaying every month because less interest is mounting up. These features are not available with standard mortgages.

When deciding whether offset mortgages compare well to standard mortgages, there are several other factors to think about. First of all, there's your own financial management. Offset mortgages work best for people who are steady savers and who will use the flexible features only when they need them. Lenders sometimes encourage mortgage holders to include other borrowing in the deal, however you should ask yourself whether offset mortgages compare well to regular debt consolidation loans. It is also worth noting that this move will turn a short term debt into a long term one.

Offset Mortgage Rates

Where offset mortgages compare less well is with the interest rate, which is generally (though not always) slightly higher than the average rate for standard mortgages. However, there are still some benefits. First of all, if you include your credit card debt in the offset account, you will pay a much lower interest rate on your credit card*. Offset mortgages compare well in this respect. Second, most offset mortgage holders repay their mortgages early, having paid much less interest than they would have on standard mortgage.**

For borrowers, it is also worth it to compare offset mortgage deals are there are differences in the way they work. Shopping around for a mortgage offset deal could save borrowers exit fees, early repayment charges, product fees and much more. With so many ways of working and different options, it can be difficult to wade through the offset mortgage minefield. If you're in doubt about how offset mortgages compare to other deals you could choose, consider asking our professional offset mortgage advisors - Our advice is free.

Can't find what you're looking for? Search here:

Offset Mortgage Centre

RSS Feed

© 2007 - 2012 Offset Mortgage Centre | Terms and Conditions | Privacy Statement *Source: Interactive Investor 4/4/07 - The average credit card annual percentage rate for purchases is around 16.1 per cent. **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.