Author: Dot Piper
As everyone knows, house prices have hit the highs in the past few years. As a result, many homeowners are sitting on a very nice build-up of equity in their homes. Many are having a re-think on how their mortgages are used and how they can benefit from the nest-egg which they’re living in.
People are no longer satisfied with a boring old mortgage and they’re beginning to look for more flexibility. Mortgage providers are more than willing to help and are coming up with an increasing range of adaptable choices.
Off-setting is what they’re all talking about and it’s one of the most used of the flexible mortgage options. There are benefits, including tax effectiveness, savings on borrowing interest and potential for planning in the long term. An increase of over 70%, on a yearly average, for the number of these mortgages being taken out shows the popularity of the schemes.
Offset mortgages allow borrowers to transfer all their savings and debts into one “pot” and so enable them to reduce the overall amount on interest owed. Many people favour this as it’s possible to shorten the term of your mortgage by paying more when you can afford it, with the result that you’re saving interest costs. The difference between the payment made and the interest charged is an overpayment and the capital balance on the mortgage is reduced. An overpayment of £50 per month could take two years of the life of a 25 year mortgage, assuming a £150.000 loan.
As far as interest rates are concerned, the rates are usually slightly higher than with other deals, but if your mortgage is modest and your salary healthy, then by offsetting the two, you can make an appreciable difference on the amount of interest owed.
Another advantage of this type of mortgage is that it’s possible to take out extra sums if you need to, at the rate of the mortgage. This avoids taking out personal loans or using credit cards, which charge a higher rate. The way this works is that you are given what they call a “reserve limit”. This can be higher than the original loan, although it varies between lenders. This can be useful for home improvements, holidays, car expenses – whatever you like.
Self-employed people may well find a flexible mortgage useful, allowing them to smooth out their drawings and expenses. If you’re relying on regular bonuses or on contract work, this could be the mortgage for you and it’s certainly worth giving it some consideration.
A “more grown up” version of the flexible mortgage is the Current Account Mortgage. This allows full banking facilities and the mortgage can be combined with income from your salary, savings, credit cards and personal loans. This means that any money paid in or interest earned is credited to the mortgage immediately. It is claimed that this can save considerable money over the lifetime of the mortgage and consequently loans can be repaid early. For the disciplined borrower, who is vigilant with the account, this could be very workable, but it does take discipline and is not for everyone.
As always, mortgage advice is freely available and a broker will offer all the options from a variety of lenders, providing a range of mortgages quotes to consider. On-line brokers are totally up-to-date on all aspects of mortgaging and will seek out the best deals for you, given you circumstances. Get in touch and find out more.
