by Mark Johnston
Although relatively new, many borrowers are moving to offset mortgages whilst many other struggle to understand what they are or are unaware of their existence. A mortgage of this type offsets the amount of interest you pay on a mortgage (the rate) against money that you have in your savings and current account. The basic concept is, the more savings you have, the less interest on your mortgage you pay. Just to be clear, if you don’t have some solid savings tucked away someone then these mortgages aren’t for you. That said, don’t go looking elsewhere juts yet, its good to understand the whole market before deciding on what’s best for you.
Although this can be a good product for some, all that is actually happening is that you are giving up your credit interest payments on your savings to reduce the cost of your mortgage to either make it cheaper, or to pay it off quicker. If you reply on the income that your savings generate in interest, then again, this product may not be for you.
In the current climate borrowers are benefiting from the record low Bank of England base rates whilst savers are struggling and seeing low returns. In this situation it may well be more sensible choosing to reduce your mortgage payments in this way.
Many providers are now offering offset mortgages and the range of products is increasing all the time. Borrowers who have significant savings would benefity the most but even those with little to no savings can benefit as many offset mortgages allow you to offset against ISA’s and current accounts.
The Clydesdale bank in Scotland which is part of the National Australia Bank (NAB) is offering a 2.59% offset mortgage with an APR of 4.5%. The mortgage is a two year discount which allows up to a maximum of 65% loan to value to be offered with a £499 booking fee.
Clydesdale don’t advertise which accounts can be offset but they have some attractive offers at the moment. Their ‘Term Deposit” locks in cash for between 3months to 5 years and pays out up to 4.86% gross interest. They also offer a range of current accounts that offer some fantastic benefits.
The independent Marsden building society is mutual with over 40,000 customers. The building society does not pay dividends to shareholders so it can pass extra benefits onto its members. The Marsden is offering a 3.09% offset mortgage (APR 5.6%) with a 70% loan to value and a booking/arrangement fee of £598. The rate is for 2 years and then reverts to Marsden’s standard variable rate mortgage which is currently 5.59% the great thing is that no early repayment applies to this mortgage so you can move whenever you like.
The Marsden has some great savings accounts to link your offset to. Their eSaver pays 2.10% interest which is pretty good in the current climate, whilst their fixed rate cash ISA pays 2.25%. Make sure you find out which accounts can be offset before making any decisions.
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