Flexible and Offset Mortgages
What are flexible or offset mortgages, and are they right for you?
Offset / Flexible Mortgage Features
Underpayment
If money is a little tight one month, you can pay less than usual with no penalty.
Payment Holiday
Should you be on reduced income for a longer period - for example through illness - you can usually take a 'payment holiday', making no repayments for a number of months.
Overpayment
If you have surplus cash available, pay a little more than your usual monthly amount to reduce the debt total, saving you money in interest charges.
Lump Sum Payment
If you are lucky enough to find yourself with a lump sum of extra cash, put it into your offset account rather than a savings account - the mortgage interest saved will usually be more than interest earned in a standard savings account.
Lump Sum Withdrawal
If you need fast access to a lump sum, for a car or holiday for example, you can withdraw it from your account. You will then pay the usual mortgage rate on your withdrawal, which will be much cheaper than a personal loan.
Drawbacks
There are no real drawbacks to flexible mortgages, although the interest rate will be slightly higher than discount mortgages - that's the price of flexibility.
It may be tempting to view an offset or current account mortgage as a 'bottomless pit' of money to be drawn on whenever you need it, but of course you will need to pay off the total debt eventually. If you don't keep track of your payments and withdrawals, the length of time it takes to repay the borrowing could end up being much longer than with a traditional mortgage - with the attendant cost of extra interest charges.
Conclusion
If you need flexibility in your mortgage, for instance if you're self employed with variable income, then an offset mortgage could be a good choice. However, you should think carefully whether you really need the flexibility and the higher interest that comes with it.
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