With savings rates so low, many consumers are looking at other ways to make their savings work harder for them. The use of offset mortgages is one such way. By moving their savings accounts to the lender that is also providing the mortgage, customers can reduce the amount of interest they are paying on the loan or reduce the term they will be paying the loan for. Funds sitting in their savings account are offset against the mortgage loan balance and then the interest is calculated against the lower amount. The savings are normally accessible so consumers can draw from them or add to them whenever they wish.
A number of lenders offer offset mortgage products, such as Accord Mortgages, Barclays, Scottish Widows Bank as well as some of the building societies.
Many offset mortgage products are linked to either the base rate or a discounted variable rate, either for an initial term or on a lifetime rate. Some are linked to an initial fixed rate which then reverts to a lifetime variable or tracker rate.
However, these products do often come with either a higher initial interest rate or higher product fees than many similar non-offset mortgage products. However, some schemes do offer incentives such as free valuations and free standard legals on remortgage applications.
Customers will also have to consider the type of savings accounts the lender is offering; is it just one account or can you link many? Also, if a client needs to access the savings monies how easy is it to do this and how will drawing some monies out affect the monthly mortgage repayments or plans to repay the mortgage early?
Careful consideration and comparison does need to be given to these mortgage products as an alternative to the more traditional offerings, and customers will need to be advised accordingly through the usual robust advice process.
And a final thought. If a customer has an existing offset product and is considering remortgaging to another lender they will have to move the savings account as well if they wish to continue with an offset mortgage.
Click below to return to the offset learning hub, in association with Scottish Widows.