Some of you may not know exactly what an offset mortgage is, so in this article we will attempt to shed some light on this subject. We will aim to define an offset mortgage and illustrate how it may of benefit to you the borrower. It will also show how you may be able to save money by reducing the amount of interest you pay on your borrowed money.

Offset mortgages are quite complex mortgages and whilst a lot of lenders purport to offer a full offset mortgage you will realise that very few actually do offer such a product when you know exactly what they are suppose to offer within them.

Offset mortgages are also known as flexible mortgages. Essentially an offset mortgage just ensures that all monies held by a client are kept within the same institution so that any credit interest can be offset against any debit interest that can be accrued on borrowings.

Say for example you have a 100,000 mortgage and you also have a credit card that you have 2,000 and some savings worth for example 20,000. What an offset mortgage essentially does is offset all your credit interest against all your debit interest. This means that if your credit card is costing you 19% per annum and you only owe 2,000 instead of getting any credit interest on your 20,000 the lender reduces the amount that they are charging you on your borrowings.

Therefore the credit card would then be costing you nothing basically. Not only that, but the interest that you accrue on the other 18000 of your savings is used to cover the interest that is being charged on your mortgage loan.

This could have the effect of either just reducing the amount you pay each month or if you maintain your usual monthly payments to your mortgage and credit card it would result in your debts falling at a quicker rate than if you had your savings deposited at all.

This may it look like you have lost your savings, but that is not the case at all. All it means it that you are not earning the interest you would have been on your savings, but are instead paying a lot less interest on your debts. Your savings are still intact, but are working for you in a different way. They are not earning interest, but are instead lessening your mortgage and credit card debt.

Another factor which would be of benefit to you is the fact that some brokers will tailor your policy so that you can use it in the same way as a current account. This means that when your wages go into your account each month the interest on your debts is reduced and along with it your borrowing costs.

An example of this is say you have a mortgage of 100,000 and no other borrowings but you do have a salary of 2,000 going through your current account. What would happen in this example is for how ever long that 2,000 or part of that money stayed in the account you would receive that portion as a reduction in your borrowing for interest calculation purposes. This might not sound like much but if you have a loan and every month your salary is offset against it for however short or long that salary actually stays in your account it will still reduce your interest charges and this over years can be a great saving.

It is hard to say whether or not someone would actually benefit from a full offset mortgage as every one has different circumstances however if it is something that you are interested in get in touch with your mortgage advisor and ask them to explain it in more details and decide whether it is actually right for you.