How To Perform An Offset Mortgage Comparison

An offset mortgage comparison is not as straightforward as it would first seem. This article will give an overview of an offset mortgage and discuss how to compare offset mortgages to help you find the right one.



Offset mortgages are fairly new to the UK market place. They were introduced to the UK in the late 1990s and originated from Australia. They were seen as a niche product, but this has changed since interest rates have decreased and the market has opened up.



The principle of offset mortgages is relatively simple - when a borrower takes out an offset mortgage, it is linked to their savings and/or current account. This allows the borrower to offset their mortgage debt against the money in their accounts, thus reducing the amount of interest owed. For example, if a borrower has a ฃ250,000 mortgage and ฃ50,000 in savings, interest will only be charged on the difference, i.e. ฃ200,000.



The range of offset mortgages within the market place has increased in recent years and consequently, offset mortgages have becoming increasing complex. For an offset mortgage comparison, you can't just compare the Annual Percentage Rate (APR) as you would with a traditional type of mortgage. The APR has limited value with an offset mortgage because nothing else is taken into account, such as the flexibility of the account, set-up charges, and Early Redemption Charges (ERC).



To obtain an offset mortgage comparison, it is important to look at the key aspects of an offset mortgage and to ask yourself - 'what can my offset mortgage do for me?' Key aspects include:



Flexibility of the account



Overpayments - are you likely to make frequent overpayments into your mortgage account? If so, you will want an offset mortgage that does not penalise for frequent overpayments or penalise you for paying off your mortgage early.



Underpayments and/or payment holidays - do you want a career break with underpayments or payment holidays from your mortgage? Not all offset mortgages offer underpayments or payment holidays, whereas some types of offset mortgage offer the service, but you usually have to make a certain amount of overpayments before you are eligible.



Credit limit - will you need a lump sum of cash in the future, for example, home renovations? Some offset mortgages allow a credit limit on top of the agreed mortgage, depending on the amount of equity in the property, which acts as a loan facility.



Debt - are you carrying credit debt and personal loans? Some offset mortgages allow the debt to be incorporated into the mortgage package, possibly leading to a lower repayment rate. The debts can also remain unsecured.



Number of accounts - can you add more than one savings/current account to your mortgage? Do you have family members that are willing to link their bank accounts to your mortgage debt? If so, you can further reduce your interest payments.



Charges and interest rates



At first glance, an offset mortgage with an initial low APR for two years and low arrangement fees may look appealing, but if it has an ERC and no underpayment facilities, it would not be suitable if you wanted to make frequent overpayments to pay your mortgage off early, but were planning to have a career break in the future.



There are many lenders in the mortgage market that offer different types of offset mortgages.



To guide you through the intricacies of an offset mortgage comparison it would be best to seek advice. An independent mortgage broker can advise you and help you with an offset mortgage comparison to ensure you can have the best offset mortgage for your needs.

How To Obtain The Best Offset Mortgage

This article will briefly discuss what an offset mortgage is; and how an independent mortgage advisor can help you buy the best offset mortgage.



An offset mortgage links your main current account and/or savings accounts to your mortgage. Every day or month, the amount owed on your mortgage is reduced by the amount in these accounts, before the interest is calculated on the loan. When the money in your savings/current account increases, you pay less on your mortgage.



If the money in your savings/current account decreases, you pay more on your mortgage.



When it comes to finding the best offset mortgage, it pays to have expert advice because there is more to a mortgage deal than meets the eye. Your mortgage will probably be the largest financial commitment in your life, and it pays to take time to look at the different options available to you.



There are different types of offset mortgages available on the market.



You could look at 'best buy mortgage tables' to find the best offset mortgage, but that only gives you superficial information. It doesn't show you the mortgage's flexibility; i.e. the ability to underpay, take payment holidays, or overpay, or what the fees and charges are. In the last couple of years, fees for mortgages have increased. Fees can be in excess of ฃ1000, and several mortgage providers are now charging fees as a percentage of the sum being borrowed, for example: a 2% fee on someone borrowing ฃ120,000 on a new low two-year fixed rate deal would pay ฃ2,400.



Once fees are taken into account, the best offset mortgage deal may not be the one with the lowest interest rate.



Recent research has shown that the best offset mortgage is not necessarily offered by the top 10 biggest mortgage lenders. The top 10 mortgage lenders offered only 11% of the best 250 mortgage deals available on the market, despite the top 10 having more than a 60% share of the mortgage market.



To guide you through this myriad amount of information available, an independent mortgage broker will give you impartial advice about the best offset mortgage, as they have comprehensive knowledge of the mortgage market. A mortgage broker is fully authorized by the Financial Services Authority (FSA) and they have the necessary qualifications to advise you.



Your mortgage broker will perform a 'factfind' to learn about your financial situation and circumstances, and your wants and needs.



Your broker will assess your ability to repay the mortgage, your credit history and credit scoring profile. Offset mortgages are usually calculated on an affordability basis and not on a simple income multiplier, which allows people with ad hoc financial income, such as a self-employed person, to possibly obtain a larger mortgage than with a standard, more traditional mortgage. All of the information you provide will help your broker obtain the best offset mortgage available for you on the market.



After the best offset mortgage has been sourced for you, your independent mortgage broker will provide you with written details about the mortgage, which will include:



- How much you want to borrow

- The type of offset mortgage you're interested in

- A description of the mortgage; who the lender is and the interest rate

- Overall cost of the mortgage including the fees

- How much your payment would be if the interest rates increased

- The flexibility of your offset mortgage



An independent mortgage adviser will answer any questions you have and ensure you have all the necessary information about the mortgage market.



It is worth spending time with them, as they are there to help you find the best offset mortgage.Resources