Lockhart Grey Financial Planning Ltd

Flexible Mortgages are based on an idea imported into the UK from Australia in 1995 (sometimes known as Australian Mortgages), flexible mortgages can accommodate a number of features such as making overpayments, underpayments, redrawing (borrowing back) any previous overpayments or taking payment holidays (stopping repayments for a period typically 3 to 12 months). A flexible mortgage can allow you to pay off your mortgage early. Such features make flexible mortgages adaptable to individual circumstances and may be useful for self employed applicants and/or those with a variable income.

The flexible mortgage has been, in many cases, extended to allow your capital balance (i.e. savings/current accounts) to be offset against your mortgage balance to reduce the interest charged.  This is known as a current account mortgage, which is also known as an offset mortgage.

An offset mortgage is a flexible mortgage that allows you to keep your mortgage debt, savings and current account balances in separate accounts and are used for the purchase of residential property.  However, all balances are aggregated for the purposes of interest calculation. If you are looking to take control of your finances then an offset mortgage may be for you

For example, you may have a mortgage balance of £150,000 with current account/savings in a separate account of £50,000, an offset mortgage will allow you to split these accounts and the current account/savings is set against your mortgage balance.  You would only pay interest on the net balance on the mortgage i.e. £100,000.  This means that your interest payments are reduced.  What’s more, because you do not earn interest on your current and savings accounts, there is no tax to pay.  An offset mortgage can easily adapt to meet your changing financial needs and circumstances.

What are the major benefits of an offset mortgage?

You may pay off your mortgage early without any penalties therefore having reduced interest payments; make extra repayments, without any charges so you save money over the long-term; underpay or take repayment holidays;  access extra money at your existing mortgage interest rate; offset mortgages are portable so if you move house it can move with you

An Offset Mortgage lender may agree a borrowing limit, known as your ‘Facility’. This is money for the actual house purchase plus an optional ‘reserve’.

You can access your reserve at any time, with the same interest rate as your mortgage, to spend on what you like. Using your reserve will increase the total amount you have to repay. However the total amount cannot be more than the value of your property

For example, you may borrow £120,000 to buy a house valued at £150,000 and decide to take out an Offset Mortgage with a Facility of £140,000. This leaves you the option to borrow up to your Facility at any time, provided you are up-to-date with your mortgage payments.

With Lockhart Grey Financial Planning’s Mortgage Service it’s never been easier to own your home. We can guide you through the process explaining exactly what happens at each stage and in a language you understand. We can help you in dealing with an estate agent, provide an experienced solicitor and will help you through every step to completion via our experienced processing team.

For more information on a flexible mortgage or an offset mortgage please fill in our quick enquiry form, or call us for a free, no obligation, consultation. You may also find our glossary useful to explain some of these terms.

Remember, it is in lenders’ interest to provide you with a mortgage, as long as they do not feel you are stretching yourself.  They want your business.  A mortgage is generally a lower risk to them, compared to a personal loan, or a credit card, as they always have the house to “secure” the loan against if you are unable to make your payments.