Offset Mortgages

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Offset mortgages have been available in the UK for over ten years and although it has gained recognition it has not managed to get the mortgage advisers attention as much as it has in other countries.

In a recent survey it was found that one in three clients would be better off with an offset mortgages buy only one in ten actually choose this option in the UK.

Many consider that it should be the choice of many more borrowers especially in the current financial climate as, many borrowers are unable to categorically state that their financial status will not change in the coming years.

People are now beginning to realize how mortgage products can help them save money but feel that offset mortgages are only for those who are able to save large amounts of money on a regular basis. This perception is not true as the product can suit savers or spenders, those investing in foreign property or wishing to consolidate debt and including those that because of their lifestyle, need a certain amount of flexibility.

There are three types of offset mortgages available, the current account mortgage this is similar to an overdraft. Funds can be accessed via a debit card and clients can draw down up to their credit limit which, subject to status, can be up to 90% of the property value. Savings and current account funds can be in different areas.

Underpayments can be made and overpayments will reduce the mortgage term.

The savings offset mortgage contains all the offset elements bar the current account. The mortgage is held in a savings pot and access is by post for deposits and withdrawals. This product may not be suitable for clients who have a large number of regular transactions going through the account because of the time deposits take to clear. This also has an adverse effect on some people as they see the account as being permanently in the red.

The flexible offset mortgage is a separate mortgage with a savings pot and current account. Access can be gained via debit cards. A credit limit can be agreed at the start and this works as a secured overdraft. It can be used to take payment holidays or for further borrowing. All funds in the savings pot or current account will offset the mortgage interest.

Many remortgage clients would be suited to an offset mortgage. The industry must now reply to the clients needs to be confident about their advice and be well educated in financial issues.

After Equity Release, offset is one of the fastest growing areas in 2008. It is now essential that advisers are educated about this product that could suit many of the needs of clients.