Financial Ponderings

My online money lobe

What in blue-blazers is an offset mortgage??? March 7, 2008

Filed under: Mortgages — financialponderings @ 5:29 pm
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I was talking to a friend the other day who said he had an offset mortgage with the One Account. He briefly explained the concept & the pros and cons, but I was still left wanting more. I have since done some research & here is my summary for those of you who don’t what an offset mortgage is:  

Basically, instead of making monthly mortgage payments as usual, your mortgage is actually tied into your bank account. It is kind of like a huge overdraft. Say you owe £100,000 on your mortgage. Your bank account will show -£100,000; OUCH!!!

Now, say you get paid £1500 monthly. when that money goes into your account, your mortgage balance goes down to £98,500. Of course, as the month progresses, it will rise as your direct debits, shopping bills & any other spending comes out of your account. It may eventually rise to £99,500 again before you get paid, at which point it drops down to £98,000.

So, what’s the benefit?

Well, because you are effectively paying £1,500 off your mortgage every month (albeit for a few days or weeks out of that month), you are not paying interest on that money during those days. So on a standard 25 year mortgage, if you can reduce your mortgage by £1500 for, say 5 days; that’s 125 days worth of interest you are not paying on that money – get it?

Sounds pretty good eh? I’d encourage you to do your own research though, as I’m sure that was just a load of waffle.

Over & out 🙂