What is offset mortgage

Offset mortgages are a type of mortgage where your savings or current bank account is linked with your mortgage account. Here, the money you saved is used to offset your mortgage repayments. This savings account linked to your mortgage account is referred to as the “offset account.”
One of the biggest reasons why borrowers opt for an offset mortgage is that it helps them cut down the interest to be paid on their mortgage. When you get yourself an offset mortgage, the lender will deduct money in your savings account from your outstanding mortgage balance to give you a net balance. Then, the mortgage interest is charged on this net balance instead of the total outstanding mortgage balance. This reduces the mortgage interest and helps you save more money.
How do offset mortgages works?
Offset mortgages can help you reduce your monthly payments or your mortgage term. If you choose to reduce monthly payments with an offset account then your monthly mortgage payment will keep on reducing over the mortgage period, but your mortgage terms will not be reduce.
If you choose to reduce the term of your mortgage by using an offset account then your monthly mortgage payment will not change, resulting in overpayments which help to pay off your mortgage early.

Some important things to consider before getting an offset mortgage:
Take help from a mortgage broker.
Especially if you are investing in a property, make sure you take help from a skilled and experienced mortgage broker. Mortgage brokers help you scan the entire market and get you deals that are the most suitable under your circumstances.
A good mortgage broker will understand your needs and help you make the most out of an offset mortgage. If you are willing to switch to an offset mortgage, get in touch with a suitable mortgage broker near you.

Choose the right lender.
Before you go ahead with getting an offset mortgage, it is important to know that there are subtle differences between the mortgages and deals offered by different mortgage lenders. Make sure you are aware of these differences before finalising a lender.

Pros and cons of an offset mortgage:
Pros

• An offset mortgage helps you save on your interest payments.
• Most offset mortgages allow you to use your savings.
• It is a good way to help your family members get on the property ladder.

Cons

• An offset mortgage often comes with higher interest rates compared to traditional mortgage deals.
• You will not be able to earn interest on the money stored in your savings account.
• Borrowers often prefer using their cash savings to pay off a part of their mortgages (to lower the LTV) instead of getting an offset mortgage.