offset mortgages-are they suited to you?
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This article discusses what exactly an offset mortgage is and how it may be of benefit to particular borrowers. Furthermore how it may save people money by effectively managing their resources to best reduce the amount of money they pay in interest on their various borrowings.
Offset mortgages are quite complex mortgages and whilst a lot of lenders purport to offer a full offset mortgage you will realise that very few actually do offer such a product when you know exactly what they are suppose to offer within them.
You may also hear offset mortgages referred to as flexible mortgages. In a nutshell. all of the clients money is held in one single institution so that interest on the credit can be cancelled out against interest on the debit that is accumulated on the money borrowed.
This can be explained quite easily with the following example: your mortgage is valued at 100000 and your credit card has a debit of 2000. Your savings are in credit to 20000. Basically with an offset mortgage the interest accrued on your debt is covered by the interest accrued on your credit, ie your savings. If you take it that the credit card is charging 19% and you owe 2000 on it, then the interest you gain on your savings is used to cover this.
Therefore the credit card would then be costing you nothing basically. Not only that, but the interest that you accrue on the other 18000 of your savings is used to cover the interest that is being charged on your mortgage loan.
There are two immediate results of this system. You can either reduce what you are paying per month, or alternatively, by maintaining the current payments you are making on both your mortgage and credit card, you will have paid off your debts in a shorter time than first anticipated.
I am often asked, does this mean I have lost my savings? Well the answer to this is No! Your savings are still there and in tact, all that has happened is instead of giving you credit interest on your savings the lender has offset the balance against your debts and charged you less in borrower interest than they would have done.
You can even find lenders who will set up your offset mortgage in the style of a current account. Your salary paid in each month will therefore also be considered as money owned as opposed to owed and will help to offset the interest payable. You have the benefit of your wages then reducing the borrowing interest and ergo the borrowing costs.
An example of this is say you have a mortgage of 100,000 and no other borrowings but you do have a salary of 2,000 going through your current account. What would happen in this example is for how ever long that 2,000 or part of that money stayed in the account you would receive that portion as a reduction in your borrowing for interest calculation purposes. This might not sound like much but if you have a loan and every month your salary is offset against it for however short or long that salary actually stays in your account it will still reduce your interest charges and this over years can be a great saving.
It is hard to say whether or not someone would actually benefit from a full offset mortgage as every one has different circumstances however if it is something that you are interested in get in touch with your mortgage advisor and ask them to explain it in more details and decide whether it is actually right for you.
Article Source: Articlelogy.com
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