Offset Mortgages: ………………
A well-known Bank is currently spending an awful lot of money on television advertising to promote their “Offset” mortgage product to all and sundry.
In the advert a uniformed employee tells us all that when we take out mortgage loan, our thoughts go immediately to “how can we pay it off quicker”. The female employee seeks to convince us all that by taking out an “offset” mortgage, our dream of early repayment will become a reality.
Well maybe yes and maybe not!!
Let’s look at who an “offset” mortgage could work for, who not and the advantages and disadvantages.
Firstly, it’s worth remembering that an “offset” mortgage carries a premium of between 0.59% and 1% on the cost of loans at 75% LTV, so switching to offset without good reason would make no sense.
So what is good sense when looking at the option of an offset mortgage?
Those who could be advantaged by taking on an “offset” would be those who:
- want to keep large amounts of cash available that might be required at short notice, such as property developers or investors. The money will sit in the linked account until required, used, then returned to offset the mortgage balance for another period
- like the security of having savings with instant access
- self-employed professional people such as Barristers, Architects etc. that have two large tax bills per year. The money is needed on demand and therefore can’t get a good return in a cash account, as instant access accounts pay virtually nothing. In additional the “nothing” would be taxed at the higher rate
- the risk averse customers
Those who would be disadvantaged by an offset mortgage by virtue of the fact that it costs a little more than a standard flexible mortgage would be those who:
- Don’t use it! Its quite simple if you are not doing any of the above, then an offset mortgage would probably bring nothing to your financial table.
As always with any complex financial product, don’t believe the hype; take advice. A good Independent Mortgage Broker is a great place to find out more about offset mortgages and flexible mortgages.