Offset mortgages
The concept of an offset mortgage empowers your client to take command of their home loan by establishing a unique connection between their savings and mortgage accounts. Through this arrangement, they gain the flexibility to make effective overpayments on their mortgage without sacrificing accessibility to their funds.
This strategic approach allows them to make choices that align with their financial goals, whether it’s decreasing their monthly repayments or shortening the overall mortgage term, depending on your client’s specific product and individual preferences.
The notable advantage of an offset mortgage arises from the fact that, by offsetting their savings against the mortgage balance, they essentially make a beneficial overpayment. Consequently, the outstanding capital debt diminishes, reducing interest charged on this smaller debt.
This cumulative effect can be substantial over time, translating into potential savings of thousands of pounds in interest and potentially shaving off several years from the mortgage term.
What sets offsetting apart is that it offers the same benefits as conventional mortgage overpayments but with a crucial distinction—it’s an ‘effective’ overpayment. Clients find this aspect particularly appealing, as it allows them to experience the advantages of overpaying without permanently parting with their funds. It’s a dynamic strategy that empowers clients to manage their mortgages more efficiently and offers them a level of financial control and adaptability that resonates positively with their preferences and objectives.
Enhancing access to cash through offset mortgages
Offset mortgages provide a unique financial strategy that allows your clients convenient access to their funds. Instead of directly utilising their savings to make mortgage overpayments, clients can leverage a linked savings account while still enjoying the fiscal advantages of overpayment without compromising access to their liquid assets. In this arrangement, clients agree to forgo earning interest on their savings, opting instead to save on interest payments associated with a reduced mortgage debt.
To illustrate, if your client carries a £200,000 mortgage balance and offsets £50,000 of savings against it, this amount effectively functions as an overpayment into the mortgage. Consequently, interest is only levied on the reduced £150,000 mortgage debt. While clients forfeit interest earnings on their savings, the benefits of this offset strategy are significant (refer to the Benefits of Offsets for specific examples).
One notable advantage is the flexibility afforded to borrowers regarding their savings accounts. They can freely withdraw or add to their savings through online transactions. The daily calculation of interest on offset deals allows clients to manage their finances seamlessly.
The system daily analyses the linked savings and mortgage accounts, determining the interest to be incurred based on the updated balances, thereby giving clients real-time control over their financial decisions. This dynamic system enables clients to navigate their financial landscape with agility, capitalising on the benefits of offset mortgages while maintaining accessibility to their cash reserves.
Is it worth having an offset mortgage?
Conveniently manage your savings through a variety of channels, such as Online Services, telephone banking, and ATMs. Additionally, use the flexibility to establish Direct Debits and standing orders directly from your savings account. The Offset savings account ensures easy access to your funds whenever required.
It’s important to note that the funds in your Offset savings account do not accumulate interest, as their primary function is to offset the interest payable on your mortgage. Remember that any surplus amount in your Offset savings account exceeding your outstanding mortgage balance will not generate any additional returns. Regularly assess your account balances and consider transferring excess funds to maximise the potential benefits of your financial holdings.
Are offset mortgages a good idea?
Offset mortgages can enable clients to take control of their mortgages and make their savings work harder by using them to reduce their outstanding debt.
An offset mortgage puts your client in control of their homeland. It links their savings account to their mortgage account.
This enables them to effectively overpay their mortgage without losing access to their money. By doing so, they can either reduce their ongoing monthly repayments or cut their mortgage term, depending on the product and the client’s preference.
This benefit occurs because they effectively make an overpayment by offsetting savings against their mortgage.
This means the outstanding capital debt is reduced, and less interest is charged on this smaller debt. Over time, this impact can be significant, saving thousands of pounds in saved interest and potentially years off a mortgage term.
It’s the same benefit your client gets from overpaying their mortgage, but what stands offsetting apart is that they are only ‘effectively’ overpaying. And this can be very appealing to clients.
To help understand more about what offset mortgages are, this Good Practice Guide will examine the following:
- What offset mortgages are
- Background to the sector
- Benefits of offsetting
- Drawbacks of offsetting
- Appropriate clients for offsets
- Good practice tips
Exploring the complete Good Practice Guide available here is recommended to gain a thorough grasp of offset mortgages.
Credit: Society of Mortgage Professionals, Scottish Widows, a Connect for Intermediate panel provider.