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Gordon & Rumsby Estate Agents – What Is An Offset Mortgage?

November 18, 2011

Gordon & Rumsby Estate Agents – What Is An Offset Mortgage?

Julie Gordon This Week: “According to The Council of Mortgage Lenders a growing percentage of buyers are applying for offset mortgages as opposed to a traditional mortgage.”

How does an Offset Mortgage work?

Example: You have a mortgage on you home of £100,000 and savings in the bank of £10,000. Because interest on your savings is at an all time low and your mortgage interest is likely to be higher, you can choose give up your interest income on the  savings and put the £10,000 amount towards your offset mortgage thus allowing you to pay interest on only £90,000 of your mortgage.

Pros:

  • It is estimated that if your savings amount to at least 5% of the value of your home then this may be worthwhile for you and it could save you money each month.
  • In the past offset mortgages had a much higher interest rate than a traditional mortgage, but currently they are only slightly above a traditional mortgage.

Cons:

  • You need a sizeable amount of savings to make it worth switching, (at least 5%) and it is not easy to save in this economic climate.
  • If interest rates goes up in the future, which is inevitable at some point, you may find that you could have got more money on your savings than you will be saving against the mortgage.

Gordon & Rumsby strongly recommend you to seek the advice of a qualifies Independent Financial Advisor when considering what mortgage is best suited to your circumstances. You can also find information about different types of mortgages on the government website.

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