The offset mortgage market has been bustling recently with various lenders encouraging customers to save rather than spend. Numerous providers are now offering attractive fixed rate offset mortgage deals. However, how does this benefit the mortgage borrower? The primary advantages of an offset mortgage involve financial flexibility and allowing your savings to align with the economic flow. So, why would anyone commit to fixed rate offset mortgages?
The benefits are manifold if one is ready for long-term planning. The primary reason is the assurance one gets knowing the exact interest rate payable for an extended duration. A fixed rate offset mortgage offers the guarantee of a stable monthly payment during the fixed-rate tenure. Though fixed rates have long been a component of mortgage contracts, the novelty lies in offset mortgage providers now extending these deals for longer durations, some even up to ten years.
The beauty of a fixed rate offset mortgage deal lies in the stability of your payments. Even when the Bank of England raises the base rate, your payment remains constant. Such deals are advantageous, especially during escalating interest rates, provided the fixed rate is competent. However, this leads to one wondering, what if mortgage interest rates plummet?
In cases where you’re locked into a long-term fixed-rate offset mortgage, your payment remains consistent, even if the rates drop. A viable alternative would be a capped rate offset mortgage, setting a limit to the applicable interest rate. If the interest rate drops, so does your mortgage payment, as long as it’s lower than the capped rate. Generally, interest rates for fixed-rate loans are less than variable rate interests. Furthermore, lenders are likely to lower the interest rate the longer the duration of the fixed rate offset mortgage. Be sure to scrutinize the Annual Percentage Rate (APR) on your fixed rate offset mortgage as it provides a more comprehensive view of the overall payable interest rate.
Nonetheless, a fixed rate offset mortgage continues to offer the perks of offsetting. This includes reduced interest payments when your credit balances are high, and the possibilities to overpay, underpay, make lump sum payments, and have payment breaks without facing additional charges. However, keep in mind that underpayments and payment holidays may extend the mortgage term and/or inflate the total amount payable. Look out for early repayment charges while considering a fixed rate offset mortgage. While most offset plans do not entail such charges, some fixed rate offset mortgage lenders may impose early repayment costs during the fixed term. Remember to assess these charges if you’re likely to switch mortgages.
