How Does An Offset Mortgage Work?

An offset mortgage is a fully flexible mortgage which allows a borrower to keep balances (such as mortgage debt, savings account and current account) in separate accounts, but, for the purpose of interest calculation, all balances are aggregated. Money in savings or current accounts is set against the mortgage balance and interest only is charged on the outstanding amount, meaning interest payments are reduced. The main advantage of this is that with base rates low at the moment, savings rates are quite abysmal. So rather than working to give you a small amount of interest, your savings work to cut down your mortgage payments and repay your mortgage faster. All your other debts, such as your credit cards or your personal loans are also linked into the nest of products and this allows you to repay all your debts at the mortgage rate, which is likely to be lower than your pay rate on those borrowings. It is worth while noticing that this way you are turning your short-term debts into long-term debts. Normally you would pay off credit card and other similar debts back fairly quickly. Lengthening the payment term of your short term loans by taking up an offset mortgage may end up costing you more in the long term.

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