Mortgages 

Pros

Easy to budget as exact costs are known. You are protected against rate increases.

Cons

Have early repayment charges and arrangement fees;
You will not benefit from rate reductions;
Rates return to the higher variable rate at the end of the scheme.

Pros

Makes budgeting easier as maximum rate is known;
You may benefit from rate reductions below the capped rate.

Cons

Higher rate (if interest is charged) than a comparable fixed rate;
Has early repayment charges and arrangement fees.

Pros

Rates charged are a certain percentage above or below the Bank of England base rate;
Payments accurately reflect borrowing rates at the time;
Will benefit from rate reductions often within 30 days of the change in the Bank of England base rate.

Cons

No protection against rates increasing. Budgeting may become difficult;
Increases are often within 30 days of the change in the Bank of England base rate;
Likely to be charged early repayment charges.

Pros

This is the based on the lenders rate with a true discount offering true savings;
You may benefit from rate reductions. May be minimal arrangement fees.

Cons

No protection against rates increasing;
Budgeting may become difficult;
Rates return to the higher variable rate at the end of the scheme;
May be repayment charges and arrangement fee.

An offset mortgage works by calculating the actual money you owe by taking your positive savings and current account balances away from the amount you owe on your mortgage and working out the interest based on the resulting amount. This is done on a daily basis so fluctuations in your balances are always taken into consideration.

Say you have £10000 in a savings account and a balance of £5000 in your current account. If you had a mortgage of £100000 the offset mortgage would calculate that days interest based on a mortgage of £85000 (£100000 – £15000 combined current and savings account balances).

As the funds are offset against your mortgage you do not receive interest on your credit balances.

For example, rather than receiving 2% interest on your savings and 0% interest on your current account balances but paying 4% on your mortgage under an offset mortgage you would simply pay interest on the net figure of your mortgage minus your current account and savings account balances.

Pros and Cons

Generally rates for mortgages tend to be higher than savings and current account interest rates and therefore not paying interest on a proportion of your mortgage rather than earning interest on your savings will save you money.

It also has the advantage that as you are not actually earning any interest on your savings you won’t have to pay any tax on your interest.

Your money remains in separate accounts so you can still see how much you actually have in your current and savings account, but it gets your money working as hard as possible.

The main drawback is that offset mortgages are rarely the best rates on the market so it is important to get help and advice when choosing your mortgage. Give me a call or fill out my quick contact form and I will be happy to provide fee free initial advice to help you through the mortgage minefield.