Posted on: 02nd Jun, 2004 03:04 am
An offset mortgage is a flexible mortgage which allows a borrower to keep balances such as mortgage dues, savings account and current account in separate accounts, although for the calculation of monthly interest, all the balances are combined. Funds deposited in the savings or current accounts are set against the loan balance and this helps to reduce the interest. This is because the interest in this case is charged only on the outstanding amount.
Features:
An offset mortgage helps to repay your mortgage dues and unsecured debts at a low cost but it has some disadvantages. In case of this kind of a mortgage, you are actually consolidating all your debts, that is, converting short term debts to long term debts. But you should pay off consolidated debts within a shorter time; otherwise, these may cost you more in the long run. Nevertheless, offset mortgages are suitable for self-employed people and those getting a large amount of bonus. These may also be suitable for those having sufficient amount of savings.
Features:
- The cash deposited in the savings account and current accounts reduces the interest on the mortgage. So the more you have in your savings account, the less interest you will have to pay on your mortgage. This helps to pay off your mortgage faster and at lower cost.
- All your debts including credit card debts, personal loans are combined while calculating the interest payments so that you can pay off all your debts at the mortgage rate. This allows you to save because the mortgage rate is usually lower than the rates charged on other loans.
- While you clear your debts including the credit card debts and unsecured loans at the mortgage rates, you will not lose your home even if you fail to repay them.
An offset mortgage helps to repay your mortgage dues and unsecured debts at a low cost but it has some disadvantages. In case of this kind of a mortgage, you are actually consolidating all your debts, that is, converting short term debts to long term debts. But you should pay off consolidated debts within a shorter time; otherwise, these may cost you more in the long run. Nevertheless, offset mortgages are suitable for self-employed people and those getting a large amount of bonus. These may also be suitable for those having sufficient amount of savings.
Interest rates on offset mortgages seems to be unattractive, but if you make savings and utilize your money in a disciplined manner an offset mortgage can be more cost-effective compared to lower-rate standard mortgage deals.
Offset mortgages can produce great benefits as a fundamental part of the borrower's financial planning process.
With an offset mortgage you get the option to offset your savings against what you owe on your mortgage. For this reason although you won't be credited with any interest on your savings, you need not pay any interest on the equivalent amount of your outstanding mortgage. Your outstanding amount on the mortgage is reduced with this offset interest. You can thus repay the loan completely prior to the date of pay-off.
In spite of these advantages, borrowers must be fairly certain on leaving significant sum of money more or less untouched in savings accounts over the mortgage term, before they decide on to take an offset mortgage.
If the borrower fails to utilize the features of the offset mortgages, and follow a long-term financial plan, then it can prove to be expensive with the rates higher than those found on traditional mortgage products.
Before opting for an offset mortgage, borrowers must seek an independent financial advice to ensure that this kind of mortgage will be an appropriate choice for individual circumstances of the consumer.
Offset mortgages can produce great benefits as a fundamental part of the borrower's financial planning process.
With an offset mortgage you get the option to offset your savings against what you owe on your mortgage. For this reason although you won't be credited with any interest on your savings, you need not pay any interest on the equivalent amount of your outstanding mortgage. Your outstanding amount on the mortgage is reduced with this offset interest. You can thus repay the loan completely prior to the date of pay-off.
In spite of these advantages, borrowers must be fairly certain on leaving significant sum of money more or less untouched in savings accounts over the mortgage term, before they decide on to take an offset mortgage.
If the borrower fails to utilize the features of the offset mortgages, and follow a long-term financial plan, then it can prove to be expensive with the rates higher than those found on traditional mortgage products.
Before opting for an offset mortgage, borrowers must seek an independent financial advice to ensure that this kind of mortgage will be an appropriate choice for individual circumstances of the consumer.