With changing lifestyles and the way in which money is coming into the home such as bonuses, self employed income and other forms of income it is easy to see why offset mortgages are starting to become more popular as homeowners are looking for far more flexibility.

Offset mortgages have been around for a few years now and have grown from a couple of providers to around 40 in 2007. Having an offset mortgage allows the borrower to offset any cash they have in their current account or savings account which will reduce the mortgage interest they pay. This is worked out by effectively reducing the overall mortgage debt by deducting the balance in the offset account.

For example if the mortgage holder has a £180,000 mortgage and their savings amount to £30,000 then interest is only paid on £150,000. This can give quite a dramatic saving on the monthly interest payment and help reduce the overall payment term.

Main Benefits of an Offset Mortgage

• They are mainly very flexible and will allow overpayments and underpayments.

• You may find offset mortgages have a competitive borrowing rate.

• Any interest earned which is offset against the mortgage is tax free.

• Are advantageous for those who can save large amounts of money as it reduces mortgage interest payments.

• In the current credit crunch the interest earned in a conventional savings account is likely to be far lower than the mortgage interest rate, so having the savings offset against the mortgage is far more efficient.

Drawbacks of an Offset Mortgage

• Offset mortgages demand great discipline. It can be all too easy to use the flexibility and draw funds back out of the mortgage and blow on lavish purchases. This increases the mortgage amount and increases the interest payments.

• You may have to use the lenders own accounts for your savings or current account making you tied to their products.

• There are not many offset mortgage products to choose from compared to other types of mortgage product.

• These mortgages are only efficient if quite a large sum is stored in the offset account, maybe 5-10% of the value of the mortgage.

There are many mortgage products out there to choose from and off set mortgages are appealing because they can be truly flexible. The key is to carefully examine all offset mortgages available and make sure the deal is right for you in the long term.

If you find that you are walking around in circles trying to determine what the best mortgage deals out there are then you will want to read this article. Choosing the right mortgage that meets your immediate and long term needs is a difficult task. At the end of this article you will be armed with the right information to ultimately help choose the right product for your circumstances.

Take a look on the Internet and you can find hundreds of mortgage comparison sites. This is a good starting point as they provide a feel of the current deals available and in many cases have links to pages discussing the different mortgage types, benefits and drawbacks. However a given mortgage comparison site will only show mortgages associated with the lenders they are affiliated with, so keep looking.

Not all the best mortgages deals are openly advertised and you may have to go to each lender and look at their products, deals and terms of those deals. As with any deal always check the fees, tie in period, redemption fees etc. Also check to see if there is a deadline when the product will be withdrawn. The key is to become familiar with the standard products and have a basic understanding of their benefits and potential pitfalls.

The next step is to find an independent mortgage broker who will work with you to look at your circumstances, and future circumstances determining affordability. The broker will look at the whole market and draw up a shortlist of potential candidate mortgages. A good independent mortgage broker will also expose you deals where there is no commission paid by the lender.

The future is important both for your circumstances and how the product will be affected by changes in the interest rate. Are there collars at either the lower or upper end? How will affordability change if there is a significant shift in interest rate? What steps can you take to help ensure both capital and interest is being paid off effectively when the market shifts. These questions and more can be answered by your broker.

So when looking for the best mortgage deals out there do your homework. Compare mortgages using online mortgage comparison sites and get the feel of what is currently available. Then find an independent mortgage broker and work with them to search the whole market, using your homework to help make the decision that little bit easier. You are not doing their job, you are arming yourself with valuable information.

If you need some advice or a point in the right direction we are here to help. We are a fully independent mortgage broker and you can contact us now.

A lot of IFA’s and Mortgage Brokers advertise themselves as Whole of Market. It should mean you can rely on them to search EVERY lender for you and recommend the best. The figure fluctuate but there are potentially thousands of deals out there.

BUT - did you know that under FSA regulation a Broker can call himself Whole of Market whilst actually searching and recommending very few lenders, possibly as little as 5 or less!!!!

Thats because the FSA definition of Whole of Market is recommending from lenders that offer products and services from the A-Z of the market place. They don’t specify a number. HMMM!!! thats not our way and its allows some Brokers to be less than open and honest.

So ALWAYS make sure you are 100% sure your broker ACTUALLY uses a wide range of lenders. BETTER STILL choose one that takes EVERY lender into account EVEN the lenders who don’t accept broker relationships - ie HSBC, Britannia, EGG et al.

Always choose someone you can rely on. Ask simple questions which will get you the best independent mortgage broker.

We don’t breeze in your door and breeze out with a signed application. We take time to really get to know you and your needs, developing a real trusted relationship for the future. That is what you want from your choice of broker and knowledge that they will source the whole of the market.

Don’t take things for granted.

There are still mortgage brokers out there who can help you.

Based in Gloucestershire, Gift Wrapped Mortgages (Cheltenham.Bishops Cleeve) have real mortgage experience helping customers all over the country. We concentrate our core business in a 50 mile radius of Cheltenham.

Let us help you through the mortgage maze, holding your hand step by step. Ensuring you fully understand everything and its right for you.

If you are thinking of a remortgage, there are still lots of opportunities out there. Please don’t leave yourself on your lenders high variable rate. Don’t bury your head in the sand waiting for things to get better, protect your family now.

The mortgage market was starting to ease, with cheaper deals beginning to come along, but last week’s turmoil kiboshed that. Banks now charge huge interest to lend to each other and this could add 0.25% to the cost of new fixed rates. Why act now? Lenders usually sell fixed rate deals in tranches, say £100m worth, and only reprice once they’re sold out (though some are being withdrawn early), so for the next few days you may still be able to grab one. The Autumn is traditionally the time when lenders look to make a last”pitch” to hit annual lending targets so its often a time of competition in the market place and a chance to bag a better deal!

Or you could look to book ahead if your current deal isn’t due to finish for a several months : It’s sometimes possible to reserve a deal even up to 6 mths ahead, though 3 months is more usual. To do this you pay a non-refundable booking fee, e.g. £100 (separate to the arrangement fee). If things get worse, you’ve done well; if they get cheaper, get a new deal and you’ve only lost the fee.

Is this the death knell for C&G as a lending name?

Be careful when choosing a product that looks good on the face of it.  The best mortgage interest rates NOW attract the HIGHEST arrangement fees.  Because most of these fees are so high many people opt to add the fee to the debt (not everyone has £2-3,000 spare).  If you add the fee on it increases the overall cost of the mortgage slightly in the short term but massively in the long term.  

UK mortgage lender rates v fees - make sure the sums add up. 

Don’t forget the interest that needs to be paid on the fee added to the loan.  So if you intend to stay with your lender its important to consider upping your payments in the short term to ensure the fee is paid early.  But then off course you might just find that in real terms its no cheaper than another rate that does not have such heavy set up fees.   Choose a good broker who will do the maths for you!

I keep being asked why the Gift Wrapped Mortgages does not have a complete online automated application process. 

Well you can apply to us using the mortgage enquiry form, but the important documentation is the Fact Find where we really get to know and understand lifestyle and affordability.  Once you make initial contact we can either meet up or I will call you and arrange for this documentation to be completed, and to ask some fundamental questions which aid the process. 

When the Fact Find has been reviewed we can discuss possible products that meet your needs and then it is down to Gift Wrapped Mortgages to source the whole market for the best candidates.

Online mortgage application - No!

The most important fact here is that I will DISCUSS with you the best options, how you feel about them, what you are looking to achieve, the risks, the commitment of a long term mortgage.  So while you can help me out by filling a detailed mortgage enquiry as an independent mortgage broker it is my duty to have personal contact with you, so I can actually provide a good service. 

An Offset Mortgage is a type of flexible mortgage.  Put simply,  you have a mortgage and an account, maybe savings account linked to the mortgage.  That means if you have for example a £100,000 mortgage and say £10,000 in savings the interest for the mortgage is not calculated against the £100,000 owed but £90,000 as the £10,000 helps reduce the mortgage debt. 

Effectively you pool all you savings and earnings into one account, so instead of paying say 6% on your mortgage, earning 4% on savings and .1% on current account it is all pooled together so the offset mortgage calculates the current mortgage loan minus the pooled funds, calculating the interest due on a daily basis.  Essentially the customer can make more from this than they would from their traditional savings/current accounts.  Also through this model your savings account is regarded to have nothing in it, so there is no tax to pay on those savings.

This type of flexible mortgage can be a very good option for the self employed, as all payments and build up of due tax payments can be built up in the account. 

Flexible Mortgage (Offset Mortgage) cost. 

Originally these types of mortgage were quite expensive and not very common but more recently availability has increased and the interest rate can be very appealing.  If you want some free advice as to whether this type of product could be suitable for you and maybe a fuller explaination please contact me.