Some of you may not know exactly what an offset mortgage is, so in this article we will attempt to shed some light on this subject. We will aim to define an offset mortgage and illustrate how it may of benefit to you the borrower. It will also show how you may be able to save money by reducing the amount of interest you pay on your borrowed money.



Offset mortgages can be confusing as they are a fairly complicated creature. It is worthwhile taking the time to understand them, however, as many lenders will claim to offer fully offset mortgages and in actual fact, what they are offering is not strictly speaking fully offset. By reading on, you will be able in the future to identify the truly offset mortgage from a false one.

Offset mortgages are also known as flexible mortgages. Essentially an offset mortgage just ensures that all monies held by a client are kept within the same institution so that any credit interest can be offset against any debit interest that can be accrued on borrowings.

Say for example you have a 100,000 mortgage and you also have a credit card that you have 2,000 and some savings worth for example 20,000. What an offset mortgage essentially does is offset all your credit interest against all your debit interest. This means that if your credit card is costing you 19% per annum and you only owe 2,000 instead of getting any credit interest on your 20,000 the lender reduces the amount that they are charging you on your borrowings.

This basically means that the credit card is costing nothing in interest. At the same time, the mortgage is costing less. If you think of the remaining savings, you are basically paying interest on 18000 less than the total value of the mortgage.

One of two things can happen here. Either the amount you pay each month will be reduced, or, if you keep up your payments on your card and your mortgage, your debts will be reduced at a faster pace due to your savings being taken into account.

But what does this mean with regards to your savings? Well, they are still safe because it is only the interest that is made on them that is used to cover the interest that your debts generate, the savings themselves are not used to cover any of the debt interest.

You can even find lenders who will set up your offset mortgage in the style of a current account. Your salary paid in each month will therefore also be considered as money owned as opposed to owed and will help to offset the interest payable. You have the benefit of your wages then reducing the borrowing interest and ergo the borrowing costs.

An example of this is say you have a mortgage of 100,000 and no other borrowings but you do have a salary of 2,000 going through your current account. What would happen in this example is for how ever long that 2,000 or part of that money stayed in the account you would receive that portion as a reduction in your borrowing for interest calculation purposes. This might not sound like much but if you have a loan and every month your salary is offset against it for however short or long that salary actually stays in your account it will still reduce your interest charges and this over years can be a great saving.

Offset mortgages may not work for everybody, but it is obviously important to know everything available to you. By being better informed, you can successfully find the right mortgage for you. By taking the information here and talking to your mortgage advisor, you should find the best mortgage for your situation.