These rather clever flexible mortgages work by linking any savings that a borrower holds with the lender in qualifying accounts to their mortgage debt balance, leaving the borrower to pay interest on the net balance. It’s as simple as that really.
They have been around since the late nineties and have evolved quite considerably over the years.
One large bank at the moment is pushing these loans through a massive TV advertising campaign and the premise for it is that a customer can pay off their mortgage loan early?
Well this can be true, but their campaign is a little misleading in that for it to work effectively you must be a saver or it’s entirely possible that a loan with a lower interest rate may be a better option.
If we remove the lenders sales pitch, who could really benefit from an Offset Mortgage?
- higher rate tax payers who need or would like to have cash available as part of their financial planning
- the self-employed higher rate taxpayer who needs to put a large lump of cash aside to pay their tax bill
- self-employed property developers who may have sold and need to keep large amounts of cash available for a new project
Any customer who is a higher rate tax payer, likes to save as well as invest and/or has money sitting around in a cash account for whatever purpose, could potentially do very well financially by using an offset mortgage facility.
Offset Mortgages all work in different ways, so it’s important to seek advice from an experienced Independent Mortgage Broker before signing up for the product.