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Offset Mortgages Rated - Pros and Cons

The complete list of offset mortgage pros and cons ensures you apply for the right mortgage product with an understanding of all the advantages and pitfalls that should impact your decision-making processes.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

Almas Uddin2023-05-09
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What Are Offset Mortgages?

While offset mortgages are an attractive proposition, there are always pros and cons to every mortgage type that you need to consider before applying.

For independent advice from professional mortgage consultants about the best mortgage product for your needs, give us a call on 0330 304 3040, or email the team at [email protected].

Benefits of an Offset Mortgage

People with large savings values typically use offset mortgages, given that the interest rates are higher, and a decent savings value is essential to make this a cost-effective option.

The benefits include:

  • Reducing your interest costs.
  • Repaying your mortgage faster.
  • Retaining access to savings.
  • Offsetting multiple types of accounts and savings.
  • Reducing your tax liability on savings interest income
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Based on your yearly income,
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Most lenders will let you borrow 4.5 times your annual salary so, as long as you have a standard 10% deposit, you should be able to borrow this much.

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Depending on your personal circumstances, some lenders may let you borrow 5 times your salary.

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Lenders usually cap the amount they lend at 5.5 times your salary, so it’s unlikely you’ll be able to borrow more than this.

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Drawbacks of Offset Mortgages

Conversely, offset mortgages might not be the ideal solution - in some cases, it might be advisable to use your savings as a deposit, rather than keeping them to leverage against your mortgage interest charges.

Potential disadvantages include:

  • Needing a high deposit usually of at least 25% in addition to the offset savings.
  • Higher interest rates than on a standard mortgage.
  • Limited choice of lenders.
  • Potentially cheaper to use your savings to reduce your mortgage value.
  • Repayments will increase if you need to access your savings.
  • Linked accounts must be with the same lender, and therefore may need to be switched.

Which is Better - an Offset Mortgage or a Repayment Mortgage?

There isn't a right answer, since for some applicants an offset mortgage will be ideal, whereas for others a standard repayment mortgage makes a lot more sense.

The pitfall with an offset mortgage is that you sacrifice the interest you would have earned on your savings, by using them to offset your mortgage. However, if the interest on the mortgage would have been higher than the interest earned on your savings, it can be a desirable option.

If you're unsure which option is best for you, give us a call, and we'll run through the scenarios to help you choose the most affordable product.

Remember that if you have a considerable value of savings, an offset mortgage is just one of the multiple options - you might consider other investment opportunities, for example.

How Do Offset Mortgage Overpayments Work?

Offset mortgages include a monthly repayment, usually of a fixed value - even if that consists of a reducing amount of interest as your savings offset is applied.

Therefore, if you leave your savings in your account, or save more, you are overpaying each month and paying back the mortgage faster.

However, it's worth noting that lenders use different calculation bases for the interest charges, so it is essential to have an independent broker recommend the best products from the customer's perspective.

What is a Fixed Rate Offset Mortgage?

Another important consideration is the interest basis - because an offset mortgage can be either fixed-rate or on a standard variable rate.

In most cases - but not all - a fixed rate is advantageous, although the selected rate's length should be negotiated with the benefit of independent advice to make sure you don't end up paying over the odds.

Which Other Factors Impact Whether an Offset Mortgage is Right for Me?

Like any mortgage, a lender will assess several factors before deciding if they can offer to lend. Criteria include:

  • How much you earn.
  • Your credit history.
  • The property.

Choosing a mortgage can be complicated, with thousands of options, so contact Revolution Brokers for an unbiased recommendation based on your borrowing requirements.

Independent Advice on Offset Mortgages

Mortgage advisors works with thousands of clients, advising on the best-offset mortgage deals, and alternative borrowing products where we think they are a better option.

Give us a call on 0330 304 3040, or email the team at [email protected] to schedule a good time to talk.

Almas Uddin
Almas Uddin

Founder and Mortgage Advisor

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FCA disclaimer

The content included in our articles, blogs, web pages and news publications is based on information accurate at the time of writing. Note that policies and criteria can change regularly throughout the UK mortgage lending market, and it remains essential to contact the consultation team to receive up to date guidance. The information included on the Revolution Brokers site is not bespoke to any circumstances or individual application scenarios and therefore is not intended to be used as financial advice. The content we share is designed to be informative and helpful but cannot be relied upon to provide individual advice relevant to your mortgage requirements. All Revolution team members are fully qualified, trained and experienced to provide mortgage advice of an independent nature.

We collaborate with lenders and providers who are regulated, authorised and registered with the Financial Conduct Authority (FCA). Should you require specific mortgage borrowing types, some products such as buy to let mortgages may not be FCA regulated. The Revolution team can provide further information about regulated and unregulated lending as required. Please remember that a mortgage is a debt which is secured against your home or property. Your home can be at risk of repossession if you do not keep up with the repayments or encounter any other difficulties in managing your mortgage borrowing responsibly. This also applies to any remortgage or home loan secured against your property, including equity release products.

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