Special Features

Myth busting offset mortgages

Kevin Purvey | Coventry for intermediaries
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14th December 2018
Kevin Purvey Coventry
"Saving even £50-£100 per month can have a big impact on a client’s offset mortgage, and help them to pay off their mortgage early or reduce their monthly payments. "

We want brokers and their businesses to succeed and we believe that opportunities still exist in today’s market that could help them do just that.

By focusing in on clients’ savings strategies they may well find that offset mortgages could be ideal, particularly for those with aspirations of paying their mortgage off early.

For brokers who include offset as part of their offering, not only can they help more clients to find the right mortgage for their needs, they also differentiate themselves from other advisers.

To help show what a fantastic opportunity offset presents for brokers, we’ve addressed some of the myths that have built up about it. Take a look at these and see whether offset could be a good fit for your clients.

Myth 1 – Offset is complicated

It’s really not! With offset, the mortgage is linked to at least one savings account (depending on the lender). The savings in this account offset the interest your client is charged, known as the offset benefit. So, if their mortgage is £100,000 and they have £20,000 in savings, they would only be charged interest on £80,000.

The client can then choose how they use the saving they make, either to reduce the term of their mortgage or to reduce their monthly payments. So not only is it simple, it can help to make a real difference to borrowers’ financial futures.

Myth 2 – Savings are better off elsewhere

With interest rates still at historical lows, it can be difficult for clients to find a good return on their savings. That’s where offset can come in.

While money in an offset savings account doesn’t earn interest, it can work harder than a repayment mortgage and a standard easy access savings account. That’s because the gross offset benefit your client receives is equal to the mortgage rate charged, which currently tends to be higher than that of a typical cash savings rate.

However, it’s worth noting that if clients reach the point where their offset savings amount is greater than their mortgage balance, they will no longer receive any benefit or interest on the excess amount. You may want to review their situation with them, as they might want to move the excess amount from the offset savings account into an account that pays interest on savings.

Myth 3 – Clients have to be big earners or big savers to benefit

While it’s true that offset is attractive for high-earning clients, and can be particularly helpful when saving for a tax bill or for putting a bonus away for now, it can also be fantastic for borrowers with a smaller income or savings pot.

Saving even £50-£100 per month can have a big impact on a client’s offset mortgage, and help them to pay off their mortgage early or reduce their monthly payments. For these clients, a good option could be a lender that offers an easy access offset savings account, so they can easily dip into their savings if they need to.

Offset can also be great for self-employed clients as the money they’re saving – for a tax bill, for example – could be working to help offset the mortgage interest they’re charged when they don’t need it, and can be easily accessed as soon as they do.

As you can see, offset mortgages can be a fantastic option for a range of clients – they’re simple to manage, they make savings work harder and borrowers could use their savings to reduce their monthly mortgage payments or reduce their term. And who wouldn’t love to do that?!

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