Off-Set Mortgages

Off-Set Mortgages and Current Account Mortgages allow you to pool your money together, so that the interest charged on your mortgage loan is calculated based not only on the amount you have borrowed, but also on the balance of your current account. Essentially, you can reduce the interest charges on your mortgage by putting more money into your current account. For example, if your mortgage loan is £100,000 and you have a current account balance of £1,000, the interest charge would be calculated on £99,000, as opposed to the full loan amount of £100,000. If your mortgage interest rate is five percent, you would save fifty pounds a year in interest charges.

Off-set mortgages and current account mortgages work in slightly different ways. The latter pools your money together in one current account, which means that if you have a mortgage loan of £100,000 and a current account balance of £1,000, your current account would show that you are £99,000 overdrawn. With an off-set mortgage your current account and mortgage are maintained separately, but considered together to calculate the interest charged. Most good off-set mortgages calculate the interest daily, which means that every deposit you make into your current account helps reduce your monthly repayment.

Off-set mortgages and current account mortgages are ideal for those with good current account balances, large savings and/or irregular income, such as the self-employed. Many lenders will offer additional services that help to reduce the cost of your mortgage and manage your cash flow. These include: additional personal loans at the same interest rate as your mortgage, flexible repayments, and the opportunity to repay your mortgage early.

Most off-set mortgages today have variable interest rates. This means that your monthly repayment changes, based on the interest rate which applies that month, as well as the balance of your current account. In some cases, this makes it difficult to manage cash flow and plan your finances in the long run. In addition, because your mortgage lender has to manage this type of mortgage more carefully, you may find that these deals are more expensive. Ensure you consider the advantages and disadvantages before making a final decision.