Dale Mortgage Brokers

Current account and offset mortgages

A current account mortgage offers you the option of combining a mortgage and a current account. There are two main variations – either separate accounts for your savings and borrowings, or mortgages where your money is combined in one single account.

A current account mortgage can be viewed as a large ‘overdraft’. When your salary or other money is paid into your account each month the overdraft is reduced and therefore so is the interest. Even when you make withdrawals from your account over the month, because the total overdraft has been reduced, the interest applied is lower and the time you take to pay off your mortgage may be reduced.

Offset mortgage

An offset mortgage offers you the option to offset the balance of your mortgage against any money you have in a savings and/or current account with the mortgage lender.

If you have a large balance of savings which are not being used, you may benefit from offsetting them against your mortgage, thereby reducing the interest you have to pay.

Advantages of current account and offset mortgages

• As soon as your salary and other money is paid into your account, it starts to reduce the amount you owe on your mortgage or the amount is offset against your mortgage and therefore reduces the interest payable
• Can be useful if you would like the option to make overpayments on your mortgage, for example if you are self-employed or receive irregular bonus payments. However many lenders now offer the option of paying off up to 10% of the mortgage loan a year on other mortgage types
• Interest is calculated daily, so any payments into your account work to reduce the interest you have to pay straight away
• You may be able to borrow more than the initial mortgage amount, perhaps for some home improvements - up to an agreed limit. This lets you borrow at the mortgage rate, rather than taking out a loan which is often at a higher interest rate

Drawbacks of current account and offset mortgages

• These mortgages can be difficult to understand as they are quite complex
• You need to be disciplined to make sure you keep on track with your mortgage payments
• Many current account and offset mortgages feature a variable rate which means that an increase in interest rates would be reflected in increased monthly payments
• You may be required to move your personal bank accounts to the mortgage lender