Offsetting Mortgages: Popular
Offset mortgages have been around for quite a while and have generally been quite popular - in the current climate, where the savings rate for cash is virtually zero, there is a pretty compelling case for looking at them if you are taking out a new mortgage or coming to the end of your current deal and you have some savings...
On the face of it an offset mortgage generally gives you a pretty ordinary mortgage deal but with the added advantage that you can link either a current account or one or more saving accounts to your mortgage account.
The main advantage of this is that instead of getting interest on your current account or saving account the amount in the account is offset against your mortgage balance so you only pay interest on the lower figure. If you had a mortgage balance of £150,000 and a saving account linked to it with £50,000 in it then you would only pay mortgage interest on £100,000.
Having savings available in this way can be useful if you will need them for some known future purchase or for “rainy day” money. Of course, there is an argument just to use some or all of the savings to actually pay off part of the mortgage but then if you need money in the future you would have to arrange a further advance, which could incur costs and a certain amount of paperwork.
In the past, one problem with this type of deal was that the rates on offer for offset mortgages were not as competitive as other, standard mortgage products but that seems to have been addressed and some of the offset products available now are very competitive. Some of the lowest offset mortgage rates available include:
A short-term tracker rate: Scottish Widows Bank has a tracker rate of Bank of England base rate plus 2.99 per cent, giving a starting rate of 3.49 per cent. The tracker rate lasts for two years and you can offset a Scottish Widows Bank saving account against the mortgage to either reduce your monthly payments or keep them at their original level and reduce the mortgage term. The penalties are two per cent plus £195 in the first two years. There is an arrangement fee of £999 and you can borrow up to 75 per cent of the value of the property. A longer-term rate: if two years is a bit short for you then Coventry Building Society has a tracker rate until September 2012 with an offset facility. The initial rate on the deal is 3.38 per cent, which is the base rate plus 2.88 per cent followed by a variable rate, currently 4.74 per cent. The penalties last for the same amount of time and are four per cent of the loan plus £125 for administration. There is an arrangement fee of £800 and a booking fee of £199 and the product is portable. The maximum amount you can borrow is 65 per cent of the value of the property but a free valuation is provided. A lifetime offset rate: if you want a long-term offset rate and like the idea of being able to offset several accounts against the mortgage, then Woolwich has just the deal for you. The rate is a tracker at base rate plus 2.74 per cent for the term of the mortgage, giving a starting rate of 3.24 per cent. There is an arrangement fee of £999 and the penalties are not too bad at 1per cent if the loan is redeemed before the end of July 2012 plus an administration fee of £275. The deal is portable should you decide to move on in the future and you can borrow up to 60 per cent of the value of the property.
Source: www.pressandjournal.co.uk
