What is an offset mortgage?

For most people, getting a mortgage is one of the most important financial decisions in their lives. When you start to look for the best mortgage, you will see hundreds of mortgage products with different names and associated mortgage deals and interest rates. As a borrower, it is important that you understand the different types of mortgages so you can choose the mortgage that is best suited for you. In this suite of mortgage guides, we look at the different type of mortgages available in the market.

Previously we discussed tracker mortgages, in this mortgage guide, we will focus on variable rate offset mortgages.

An offset mortgage is a 'type of mortgage' that is based on variable interest rates.

Offset mortgages

With offset mortgages, your savings and current accounts are linked to your mortgage account. As a result, you pay interest only on the difference between the two accounts. Note the amount of monthly repayments will be the same as other mortgages, but if your savings are high, the difference will be considered as overpayment. This can help in clearing your mortgage earlier than the original term.

Example: Let's say you take a mortgage of £250,000 and have £100,000 in your savings account. So, you will be paying interest only on £150,000 (£250,000 - £100,000). Examples of some offset mortgage products are Chelsea Building Society Flexi 2 Year 1.58% Fixed Offset or First Direct 2 Year BBR+1.09% Offset Limited Edition.

That completes our overview of variable rate mortgages, in our next mortgage guide we look at the different types of mortgages which are based on repayment structure.

Next: Repayment Mortgages

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