In today’s world where interest rates on savings are low, offset mortgages could be a solution for many of your mortgage clients.
How it works?
An offset mortgage allows clients to use the balance of eligible current and savings accounts to “offset” against their mortgage balance, reducing the amount of the mortgage on which they’re charged interest. (All accounts must be with the same provider).
Depending on the client’s circumstances and requirements, the savings made can either be used to reduce the term of the mortgage or reduce the interest on the monthly mortgage payments.
There’s a belief that offset mortgages only benefit a certain type of client – but offset could provide a platform to suit a range of clients, including clients;
- Who are remortgaging, next-time buyers or first-time buyers.
- With fluctuating cash flow due to self-employment or with a high bonus to salary ratio, for example; saving for tax bill.
- Wanting to make overpayments.
- With excess funds in their current account at the end of each month.
- Who are higher rate tax payers.
Offset Mortgages can appear complex. There is a lot of information and help available to you from lenders who deal in this sector so speak us or your lender contacts as we're all willing to help. To get you started we've listed 10 useful things worth knowing about offset mortgages.
Things you should know
- Only one offset mortgage is available per client.
- Funds in joint bank account(s) cannot be offset against a sole offset mortgage.
- Funds in sole bank account(s) can be offset against a sole or joint offset.
- Transfers of equity are not permitted on offset mortgages. A full remortgage must take place if a name is to be added or removed.
- Business accounts cannot be offset.
- An offset mortgage can only have one main mortgage account.
- Over-offsetting can happen if a client has more in savings balances than on their mortgage balance. As interest is not paid on the excess amount, clients should be advised to place the excess of credit balances into a separate interest bearing account.
- Clients can add to or remove savings like a normal savings account. The more savings they offset the less interest they’ll pay on their mortgage, the more they take out their mortgage interest will increase accordingly.
- Clients can usually offset up to three separate savings accounts. These include two sole savings accounts and one joint account.
- Clients can use their current accounts in the usual way and set up Direct Debits, Standing Orders, deposit funds and take money out.