How appropriate is an offset loan?

This is the new mortgage craze in town. But how suitable is it for you and your pocket?

07:05 26 December 2013

The UK mortgage system is a very prominent and disparate one. It is supposed to cater to the different people out there. While most countries try a one-size-fits-all approach to mortgages, the diversity offered by UK mortgages caters to the varied needs of different people.

Offset mortgage is one of the most common plans adopted in the UK. It works by offsetting the amount you have in your savings account against the mortgage amount you get. So people only pay for the mortgage balance left after subtracting the savings you put up from the mortgage you took at the outset.

So what makes this mortgage system very appropriate?

If you were worried about being bogged down by the interest charged by banks on mortgages, then worry no more. The idea of offsetting the savings you have means that you basically pay the interest of a lower amount. A lower interest means that you have more money left over after catering to the other expenses you have.

Offsets are dependent on how large the mortgage is, the amount of savings you have in the bank and interest rate already existing.

The duration of the mortgage period varies with the interest rate already in place. Standard interest rates at first glance look as the cheaper alternative to offset loan. However, if you put the mortgage to the test you will find that in the long run, you save more if you take up the offset mortgage. Basically, the savings you offset against the mortgage, you end up saving a huge bundle of cash.

However, your savings have to be very high if you are going to mitigate the effects of the interest rates there.