Offset Tracker Mortgages

Keeping Track Of Offset Tracker Mortgages

Red TapeOffset tracker mortgages are gaining in popularity among British homeowners*, part of a growing interest in tracker mortgages in general. Interest rates on offset tracker mortgages, like other tracker mortgages, are linked to the Bank of England base rate, so that the offset mortgage interest rate rises when the base rate rises and falls when the base rate falls. Offset tracker mortgages should not be confused with variable rate mortgages. Standard variable rates are set at the lender's discretion. Many offset tracker mortgages are available at lower rates than their fixed rate counterparts, though analysts believe that the difference between them is narrowing.

Offset tracker mortgages are particularly useful for people with variable incomes. Self-employed people, City workers on bonus schemes and sales people who earn commission - to name just a few - can all benefit from the opportunity to manage their own finances that mortgage offset deals offer. This is because offset tracker mortgages and fixed rate offset mortgages are flexible. People with mortgage offset accounts can pay more money when they have more income available and less when they don't. Remember underpayments and payment holidays could increase the mortgage term and/or the total amount payable. They can pay their annual bonus or monthly commission in as a lump sum to reduce the amount owed on the offset tracker mortgage. Best of all, offset tracker mortgages, like other flexible mortgage deals, can be repaid early, usually without penalty. It's no wonder that so many people with offset tracker mortgages pay them off between three and eight years early**.

Should You Choose An Offset Tracker Mortgage?

Offset tracker mortgages may not be suitable for everyone. Some people prefer to have the security of a fixed rate deal and there are several lenders who offer long term fixed rates, such as the First Direct's 2007 launched ten year deal.

The Right Mortgage For You ImageLifetime offset tracker mortgages also appeal to some borrowers, especially those who don't want the hassle of remortgaging regularly. However, many people now move mortgages in as little as two years, so they might get the best value from two year offset tracker deals. Although an interest rate rise is predicted before the end of this year, in the medium term they are expected to be static or falling.

Some lenders encourage borrowers to use offset tracker mortgages to consolidate their debts at the same time. However, financial advisers warn that this means that a short term debt is converted to a long term one, which might not make financial sense for everyone. However, there is one advantage of linking credit card debt to offset tracker mortgages. With the average annual percentage rate for credit card borrowings hovering around the 17.5 per cent mark, most borrowers will save a considerable amount by repaying their credit card debt at the considerably lower mortgage interest rate.

There's also good news for savers. Although offset tracker mortgages mean giving up the interest on your savings, offsetting the savings mean that you are saving yourself interest at an even higher rate. The mortgage interest rate outperforms the average savings rate by several percentage points. Best of all, with offset tracker mortgages you could defray thousands of pounds in interest - and that, too, is a saving.

Please note that The Offset Mortgage Centre cannot advise on or arrange mortgages from First Direct.

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