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The Advantages Of An Offset Mortgage
Offset mortgages are one of the newest types of mortgage around, and are quite similar to current account mortgages. They are highly flexible, and if you are looking for a mortgage then you should consider an offset mortgage. Here is some more information on offset mortgages and how they can be beneficial:
What is an offset mortgage?
An offset mortgage is a new type of highly flexible mortgage. It is similar to a current account mortgage, which puts your mortgage and all other spending in one account. However, with an offset mortgage the money you have is split into separate accounts or ‘pots’, which are linked for interest calculation. Your wages, savings and other debts are linked together and the interest rate is kept the same on everything. Any money that you earn or savings that you have can be used to pay back the mortgage more quickly.
Advantages of offset mortgages
Offset mortgages can save you a lot of money if you use them wisely. This is because you can use items such as savings to pay back the mortgage more quickly, and effectively reducing the interest paid plus avoiding tax on savings. Offset mortgages are also great because of their flexibility. You can underpay at some points or even withdraw money from the mortgage and then make large overpayments at no extra charge. This sort of mortgage is great if your wage varies from month to month. Also, with daily interest rate calculation means that any money in your accounts will reduce the amount of money you owe, and therefore reduce interest.
What are the disadvantages?
There are also some disadvantages to offset mortgages. Firstly, it is hard to keep track of the money that you are spending when all the accounts are linked. Because there is less of a need to make certain repayments each month, you often overspend and put yourself further into debt. Careful money management is required to make the most out of an offset mortgage. Furthermore, the interest rates on offset mortgages are usually higher than traditional mortgages. You are paying more for the level of flexibility that you are being given.
Who should get offset mortgages?
Offset mortgages are best for people who have a fairly large amount of money in their current or savings account, as these will help to pay off the mortgage quickly. Also, with the higher rates they are not advisable for people on a tight budget, or those who are poor money managers. Offset mortgages are used best for people with high but unpredictable incomes. If you think that having a highly flexible mortgage will suit your lifestyle and that you can spend your money wisely, then an offset mortgage would be a good option for you. Offset mortgages are still new, but there are more and more lenders offering offset packages, and so the rates and terms are becoming more competitive. If you shop around then you can find an offset deal to suit your needs.
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